Even if your earnings aren’t what you’d like, you can still save toward a healthy retirement.
Planning for retirement isn’t a luxury that only the wealthy can afford. In fact, the less we earn the more important our retirement savings becomes to our futures. While we need our income now for day-to-day essentials, we’ll need it more once we retire and have fewer opportunities to earn.
Social Security will help some, and so might other benefits such as a pension, if you have access to them. But the most reliable way for anyone to secure their own future is by planning for it now. And we can all do that, even if income is modest.
Investigate every avenue for tax breaks, and take as many of them as you can.
1. Max Out Every Available Tax Break
Every dime that you contribute to a traditional 401 (k) plan or an IRA is tax deferred. This means that you won’t pay taxes on the amount you contribute until you’re ready to begin withdrawing at retirement.
When you make contributions and defer taxes on those dollars, you’re reducing your overall taxable income. Better yet, you can make last-minute contributions right before tax time in April, according to Huffington Post, and still claim tax savings.
2. Make Saving for Retirement an Automatic Thing
It seems like the less money you have the more acutely aware you are of every dollar that’s earned and spent. When contributions are something you think about every month, there are at least 12 chances per year to make a poor choice. More, when you factor in weekly or bi-weekly paychecks.
Automatic deductions take the decision making process out of the equation. It might pinch a little at first. But chances are, you’ll settle into it. In time, you might rarely think about those deductions at all. Except, of course, when you realize just how much you’ve saved.
Tax time might be the wealthiest you’ve been all year, but some of it needs to go toward retirement.
3. Resist the Tax Refund Temptation
Tax refund time is an opportunity to save or spend. For many people, a nice refund offers the means to buy things, such as a new TV or computer, that aren’t in the usual budget. And before too long, the whole refund is gone. Saving instead of spending is a better choice.
If you can’t save your whole tax refund, consider saving half. U.S. News Money says the IRS form 8888 not only lets you take a direct deposit option to your checking or savings account, but also lets you send your refund directly into an IRA. You can even send part to checking and part to an IRA.
4. Set a Goal
It is a proven that setting a goal provides motivation. This is true of saving for retirement as well. No matter how old or young you are, it can be a great idea to use a retirement calculator to find out how much savings you will need to live the life you want in retirement.
Knowing what you need and setting a goal is perhaps the best way to save for retirement. Get saving and saving the right amount.
5. Increase Your Savings Rate Every Year
Another best way to save for retirement is to increase how much you save every year.
Just as saving automatically takes some of the emotion out of making deposits into a retirement account, so can increasing the amount that you save by a small percentage every year. Some 401 (k) plans offer an automatic savings rate increase. If yours doesn’t, U.S. News Money explains that you can still make that choice on your own.
An automatic increase might sound difficult when you’re already saving every penny that you can afford. But there are so many ways to cut back to make it possible. Changing cell phone, cable, or Internet plans could offset the difference so that you don’t feel it at all.
The most reliable source for retirement income is you. No one else has your best interest as much at heart, and no one is in a better position to offer the security that you need. The sooner you start, the better off you’ll be.
NewRetirement has tools that help with saving, investing, and planning for retirement. Whether it’s decades away or closer than you’d like to admit, one day you’ll no longer be in the workforce. Try our Retirement Calculator and learn what you need to prepare for it.
