Preparing for retirement may seem unnecessary if you are just starting your career, but when it comes to investing in your future, it’s never too soon. If you want to enjoy financial freedom during your golden years, start building your financial cushion now with these simple strategies.
Do Your Research
The first step in any plan is to educate yourself. Thankfully, there are plenty of books and online guides that provide valuable information about retirement income, anticipated expenses, and investment strategies. Alternatively, you can attend a financial seminar for retirement income planning. By attending a seminar, you learn useful information on retirement planning, meet a financial expert, get your questions answered, and learn about the next steps.
Start Investing Today
Begin investing in your retirement as soon as you can because the longer your money is invested, the more time it has to grow. This also allows you to benefit from the law of compounding. According to this principle, as you earn money on an investment, you can reinvest those funds to generate more earnings. The longer you have the money invested, the more times this cycle can repeat, and in the end, a small sum of money invested early can grow substantially by the time you need it.
Consider a Retirement Annuity
Retirement annuities are designed to provide a guaranteed revenue stream to ensure you don’t outlive your assets. Generally, you fund the annuity with a lump sum of money or a series of payments that you make years before you plan to retire.
If you choose a fixed annuity, there is a fixed rate of return for life or for a predetermined number of years, and, thus, you know exactly how much revenue you’ll receive once the annuitization period starts. Conversely, if you choose a variable annuity, your rate of return is based on how well the selected stocks and bonds perform.
Take Full Advantage of Employer Contributions
If your employer offers the option of a 401(k) plan, you should invest part of your pre-tax income. It’s a painless and straightforward way to invest because the money is taken directly out of your paycheck.
Many companies also offer to match your contribution up to a set percentage of your income. If this is the case with your employer, you should take advantage of this deal. It’s wise to invest at least as much as the employer is offering to match. In other words, if the firm says they will match up to 4% of your salary, try to invest at least 4% so that you don’t miss out on any of the free money your employer is willing to contribute.
Start an IRA
If your company does not offer a 401(k) plan, you still have options. Depending on your level of income, you may still be able to contribute money towards your retirement by opening up a traditional or Roth individual retirement account (IRA). With a traditional IRA, you can contribute a set amount of pre-tax money, paying taxes on the accrued gains when you withdraw the money. With a Roth IRA, you pay taxes on the money you invest, but all future earnings are tax-free.
You’re never too young to start planning for retirement. By following these strategies, you can achieve the retirement lifestyle you deserve.