Ways to Increase Your Savings with Efficient Retirement Planning
Efficient retirement planning strategies are vital for preserving your capital and ensuring you generate adequate savings. Your spending and investment choices can have a direct and significant impact on how comfortable your post-retirement life will be. While there are several benefits to starting retirement planning early on, "compound interest" is probably the most compelling one. Read on to learn more about how you can increase your savings with efficient retirement planning.
How to Increase Your Savings with Efficient Retirement Planning
Set Your Retirement Goal & Start Saving
If you have some idea of what your annual expenses might be like in retirement, you can come up with a more personalized goal using the 25x rule. As per this rule, your retirement goal can be 25 times your estimated annual expense, so you can retire without any worries of running out of funds. However, assessing how much you need to save for retirement can be tricky since there are so many variables to consider. In this case, it's best to start by fixing an approximate retirement goal and then working towards it.
Even small monthly contributions can become a large amount in your retirement account in the long run when you factor in compound interest. However, retirement planning may not be as simple as budgeting and planning for an inanimate object like a car or a house. There are different variables to consider, and some of them are hard to define.
Some factors that are hard to decide on include the age at which you will stop working, your life expectancy, and the medical expenses you are likely to incur in the future. It's also vital to consider other factors like the kind of house you want to live in and the lifestyle you would ideally like to lead. Therefore, having a personal finance goal for post-retirement can be extremely challenging. The earlier you start, the more you can plan these in advance.
Open a Retirement Account
Once you've made up your mind to start saving, it's recommended you open a retirement account. In some instances, stock market investments like stocks, bonds, and mutual funds may offer significantly better returns than savings accounts. This has made them a preferred choice for a retirement savings plan.
The federal government has also created retirement accounts to encourage people to save for retirement. These accounts have certain tax benefits as well. There are two main types of retirement accounts:
401(k)s, which is an employer-sponsored retirement account,
Individual Retirement Accounts (IRAs)
In general, both types of accounts are available in traditional and Roth varieties. Both offer different tax advantages, and you can choose whether you'd prefer an income tax break now or in retirement.
Automate Your Retirement Savings
If you want to make it a point to save monthly, automatically without fail, it's vital to automate your retirement account contributions. A good financial advisor will advise you to set up a regular recurring amount deposited into your retirement accounts, whether through a workplace 401(k) or in an IRA. If you are investing in an IRA, it's best to follow the principle of dollar-cost averaging. It will help you pay less per share on average and help you save more. With 401(k), you may probably already use this method.
Increase the Percentage Rate of Your Savings Progressively
Investors can start small and increase their savings percentage slowly by 1% or so each year to reach their desired goal of 15% savings from their salary. Apart from this, there are some other methods by which you can add to your savings:
Save a Portion from Raises or Bonuses- Whenever you get a bonus or raise, you could try depositing the difference amount right away to your retirement fund.
Save Your Extras- If you get a tax refund or other unexpected premium, use the extra money to contribute to your IRA.
Pay off Your Debts - Once a debt is paid off, you can start depositing the same amount to your retirement account.
Avoid Changes in Lifestyle with Increased Expenditure- It's normal lifestyle spending increases when there is an increase in salary or income, and it's hard to resist. But it's best to control these unnecessary expenditures for a better future retirement. Always try to channel your extra cash into your retirement savings.
Consider Opening Additional Retirement Accounts
Opening additional retirement accounts can have extra benefits as well. For example, if your 401(k) employer-sponsored plan charges excessively high fees or the investment options are not good enough, you can consider opening an additional retirement account. Secondly, if you have reached the annual contribution limits in your main account, you can open an additional IRA or a Roth IRA and set aside a considerable amount of money there.
Invest in Real Estate or Get a Side Job to Generate Extra Income
Purchasing income-generating real estate is also a great way to increase savings. Purchase property and then finance it carefully to generate profits from it. It's best to take the help of a professional financial advisor or wealth manager.
Similarly, getting a side job as a freelancer or pursuing a money-making hobby can boost your earnings as well. If your side business is considered self-employment, you might be able to contribute to a solo 401(k) or a Simplified Employee Pension plan. And these contributions could be tax-deductible.
Get Professional Guidance
Seeking professional assistance in such matters is always a sensible option since a professional financial advisor can further guide you in creating the right financial plan to increase your savings and help in efficient retirement planning. Always seek help from certified professionals like chartered financial analysts or certified financial planners since they abide by ethical codes.
Starting too late or saving too little for retirement could be a cause for regret later. If you are looking for reliable wealth managers who can help you protect your capital and grow your wealth, reach out to our specialists at Fulcrum Wealth Advisors. We are a renowned locally owned independent wealth management firm that offers customized financial advisory services to help secure our clients' future. Visit our website to learn more about the services we offer.