Whether you’re fresh out of college or nearing the end of your career, planning for retirement is a wise decision. After all, everyone has to retire at some point, be it out of choice or necessity. The sooner you begin preparing for it, the more comfortable, enjoyable and secure your retirement will be.
To reach the fun part, you first need to deal with the boring part – figuring out how you’ll get there. This starts with your goals and strategies for reaching them. From there, you need to look at the accounts that are available for funding your future. You will also have to consider taxes to ensure that your savings aren’t cut down by retirement tax later on.
We will get into all of this and more below. So, without further ado, here are four tips to boost your retirement savings.
Determine Your Risk
How many years before you retire? The more time you have, the more risk your portfolio can withstand. If you’re only in your twenties, for example, then you can place your assets in more volatile investments such as stocks. While the risk may seem higher, stocks historically outperform bonds and other securities overextended (10+ years) periods.
It’s vital that your returns outpace inflation. This is the only way to maintain your purchasing power come retirement. Be sure not to underestimate the inflation rate. A seemingly small figure like 3% will see half of your savings disappear in 24 years. If you are closer to retiring, on the other hand, inflation is less of an issue and stable securities are appropriate.
Consider Your Spending Needs
Among the most common senior money mistakes reported in studies is retiring too early and withdrawing savings ahead of the planned date. Your spending habits can play a major role in determining whether you’ll suffer the same fate. It’s crucial that you’re realistic about how you’ll manage your money in the future.
You might think that you’ll be spending less, but unforeseen costs such as mortgages and medical expenses can quickly raise the figure. Retirees also tend to spend their first years traveling and ticking off other costly bucket list items. And with eight additional spare hours each day, you’ll have more time for expensive activities like shopping and sightseeing.
Calculate Your Returns
To determine the feasibility of your portfolio, you need to calculate your predicted returns. Since most retirement plans are subject to taxes, it’s important to calculate your returns on a post-tax basis. In doing so, you’ll gain a better idea of how much risk you can take on.
Select Your Investments
Retirement accounts, of which there are mainly seven different types, offer access to a variety of investments. This includes bonds, stocks, and mutual funds. Determining the right mix is key. It’s also wise to avoid constantly babysitting your investments and if you’re unsure about how to go about the process, consider hiring a financial advisor.
Retirement planning doesn’t happen in a day. But with enough care and diligence, you can set yourself up for the best possible future.