How to save for retirement
Most people know saving for retirement is important but many don’t know just how many ways there are to save for the future. Local financial professional Barry Bigelow has tips for ways to ramp up your retirement savings.
About 60 million people actively participate in a 401(k) plan, and millions of former employees or retirees have 401(k) accounts. This is by far one of the most common ways for people to save for retirement. As an investor, you should understand how your retirement investment works. For example, contributions to your 401(k) during your working years lower your tax liability, but money you put into a 401(k) will be taxed when you withdraw it during your golden years. Everyone’s retirement investment is different, and several different types of investments will diversify your tax liability and market risk.
An Individual Retirement Account is a type of investment that is almost as popular as 401(k)s. 45.5 million people have either a traditional IRA or Roth IRA. Usually, these are accounts you can save in outside of your employer-sponsored plan geared specifically for saving for retirement. There are penalties associated with withdrawing money early from the account designed to keep your savings on track. There are several types of IRAs: traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs. All have unique rules regarding eligibility, taxation, and withdrawals.
Non-qualifying investments refer to investments that don’t have any tax benefits like annuities, antiques, collectibles, jewelry and art. An investor typically has no annual restrictions on the amount that can be put toward these assets, unlike 401(k)s or IRAs. A good example of this is an annuity. Over time the annuity will grow tax-deferred. You will be taxed on the money you withdraw. The tax you pay depends on if you purchased the annuity with pre-tax or post-tax funds.
There are several different ways properties can add to your retirement savings. You could sell your house, downsize and put the money you earn off the sale into a retirement account. You could rent out a property to generate income. A word of caution; it could be a headache being a landlord. A general rule of thumb or goal should be to earn 8% per year on your investment after costs. You can also invest in properties through Real Estate Investment Trust that provide income through regular dividends or Real Estate Funds that provide income through appreciation.
People can prioritize their retirement savings in a few ways. Make sure you’re saving 5-10% of your income for the future. Starting in your employer-sponsored 401(k) is a great plan to begin while you will learn more and research other investment options. It’s important to remain diligent with your savings. You can automate your savings from your paycheck directly into your account, and you won’t be tempted to spend it. And, of course, if you’re struggling to figure out your next investment move, work with a financial professional. They will be able to take a comprehensive look at your portfolio and provide strategies to help you diversify your retirement savings.
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