Ready for retirement planning?
Managing your retirement planning can feel overwhelming. Where do you start? How much should you save? What should your portfolio contain? How you should save for retirement depends upon many factors. Your age, net worth, goals and risk tolerance all come into play. In addition, there are many different vehicles for saving for retirement.
Explore these personal finance insights that explore how to navigate your retirement planning.
Retirement savings vehicles
Some of the most popular retirement savings vehicles are:
- 401(k) account: If you work for an employer, you may be able to participate in your employer’s 401(k) plan. If you are self-employed, you may be able to use a Solo 401(k). With a 401(k), your contributions are pre-tax. You are not taxed on that money until you withdraw it in retirement.
- Individual Retirement Account (IRA): There are both traditional and Roth IRA’s. With a traditional IRA, you receive a tax break the year in which you contribute. You pay taxes on your withdrawals. On the other hand, contributions to Roth IRAs are made with after-tax money. However, earnings and withdrawals from Roth IRAs are tax free.
- Taxable investment account: An investment account is a brokerage account which holds any combination of stocks, bonds and mutual funds. You contribute after tax money and you are subject to tax on any gains. However, the capital gains tax rate is probably lower than your income tax rate.
- Real estate: Your primary residence and income producing properties. These can be rentals, commercial property or any other real estate holdings which can be an investments to fund your retirement, as well.
Start saving for retirement
So, you’re ready to jump in and start your retirement savings. Where do you begin your journey?
First, if you work for an employer who offers a 401(k) plan with a match, sign up for it. You are throwing away money if you don’t contribute at least the amount required to get the employer match. You can put in up to $19,000 each year, and if you are over age 50, you can add $25,000 each year (for 2019). Most experts recommend saving at least 3% of your income into your 401(k) plan. Work your way up to saving about 10%, if you can.
In addition, you can open an IRA or investment account with no account minimums with many online brokerages like E-Trade, Merrill Edge and TD Amertirade. You can start with a really small amount – even just $5 – with many of these companies. Start by having a small amount transferred automatically every month to your investment account. Increase that amount little by little over time. You probably won’t even notice that money missing from your spending. Then, be amazed as your savings grow over time.
Managing your retirement portfolio
Most experts recommend a balanced portfolio of retirement assets. This means you don’t want all of your eggs in one basket. Generally, the further away from retirement you are, the more stocks you may own. Which, means a riskier investment portfolio. This is because historically the stock market tends to increase in value over time. As you get closer to retirement, you may choose a more conservative portfolio, such as bonds and cash. You don’t want all of your money to be in a very risky investment if you are going to need it in the near future.
Discover a personal finance professional
A qualified financial planner or investment advisor can be instrumental in helping you meet your retirement goals. Your advisor can help develop an overall financial plan and portfolio taking into account your age, wealth, risk tolerance and other factors. Meet with your advisor regularly to ensure you are on track to meet your retirement goals.
Know how to navigate your retirement planning
Understanding these personal finance insights is key to helping you navigate your retirement planning.
- retirement savings vehicles
- saving for retirement
- the ins and outs of managing a portfolio
- network with investment advisors and financial advisors
Once you have your retirement plan in place, you should review it every few years to make sure you are on the right track. Also, your life circumstances may change. You may come into more money, or you may lose your job. It’s important to have goals, but also remain fluid enough to adapt to any of life’s curve balls.