Friday, January 16, 2015

Retirement Savings Strategies

There are a few different monumental things you will save for in your lifetime; buying a home, having a baby, a college education and perhaps most importantly, your retirement.  These days the importance of saving for your retirement cannot be over stated.  Many people get to be in their forties and fifties and realize that they aren’t nearly in the financial situation they wished to be in by that age.  It’s a tough realization but if you don’t properly prepare, retirement may have to be put off until well into your late seventies or early eighties if you can’t afford to quit working just yet.  Fortunately, you don’t have to be one of those late retirement people.  There are things you can do to set up and begin saving for your retirement.

Retirement

A good way to approach a retirement savings plan is to first figure out about how much money you will need.  Calculating the cost of retirement can help you avoid both over and under saving.  The problems with under saving generally arise when (1) a person fails to put away a realistic amount of money needed to live on for the remainder of their unemployed years or (2) an individual failed to save enough money for his or her remaining lifespan.  For example, a person retires at age sixty-five and has saved enough money to live off of until he or she reaches the age of ninety, assuming that there is no way that he or she will live longer than that.  Much to his/her surprise, the person actually ends of living until ninety-five and hasn’t saved enough money for the last five years.

On the other hand, when the issue is over saving retirement you may be wondering what exactly the problem is.  After all, is there really a problem with saving too much?  The fact of the matter is that by over saving for retirement, you may actually be placing yourself in a more stressful financial situation than is necessary during the years leading up to retirement.  Remember, saving for retirement is important but you don’t want to put yourself in a financial bind just to do it.

The next step is to do your homework regarding retirement savings options.  Get online or go to your local bookstore and look up as much information as you can about a 401k plan through your place of employment, if one is offered, and what tax considerations you should keep in mind while setting up a savings plan.  After choosing a retirement plan that works for you, stick with it and contribute to it;  Plan on putting aside approximately 10% of each paycheck into either a high yield savings account or better yet, into a 401k and don’t touch it.  As you get older you should increase your contribution to your savings account or 401k to approximately 15% -20% or more depending on what you can afford.   

Finally, you may also want to consider investing in your retirement through the purchase of stocks and bonds.  During your twenties and thirties you can afford to be a little daring with your investments and make riskier purchases, however as you grow older, try to stick to safer investing that isn’t going to decimate all the hard work you’ve done.  A diversified portfolio works wonders to control the damage stock market highs and lows can cause.

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