According to a recent article from Forbes, Americans will need to save 25 times their annual spending to be comfortable in retirement. This follows the 4 percent rule, developed by financial planner Bill Bengen, which factors in an individual’s assumed annual spending based on salary. To put it simply, an individual that plans to live on $40,000 a year in retirement should have $1,000,000 saved by the time he or she retires. Understandably, this can seem a daunting expectation. However, by saving for retirement wisely, reaching an important savings goal isn’t as challenging as it may seem.
Consider these smart ways to save for retirement:
Invest in your Employer’s 401(k)
Never pass up the opportunity to participate in your employer’s 401(k) program. A 401(k) is a retirement fund that allows employees to invest in various mutual funds via automatic paycheck deductions. Rather than remembering to invest money into your retirement account at the end of each month, a 401(k) ensures it happens automatically. Most employers will also contribute to each employee’s 401(k) account if an employee contributes the maximum amount possible each month or pay cycle. An employer may match 10%, 25%, or even all of what you contribute. Because a 401(k) retirement fund is convenient and often involves employer contribution, it’s the most popular choice for retirement savings among American workers.
Open a Roth IRA
A Roth IRA is similar to a 401(k), but is established independently from an employer. A Roth IRA is an after-tax, individual retirement fund that allows account owners to withdraw all earnings tax-free after the age of 59 ½. Money is also invested into mutual funds, and unlike a 401(k), contributed money (not earnings) can usually be accessed at any time without penalty. Of course, the idea is that money is left untouched until you’re ready for retirement. Roth IRA contributions can also be made via an automatic withdrawal system for convenience and consistency.
Stick to a Budget
While this may seem like an obvious word of advice, a recent Gallup poll finds that just 32 percent of American adults actually adhere to a firm budget on a month-to-month basis. To be serious about retirement, you’ll need to practice strong financial habits throughout the entirety of your working life (and beyond). This means that not only should you stay committed to participating in a 401(k) and contributing to other investments, but you should be highly contentious of living within your means on a monthly basis and capitalize on opportunities to save even more.
Manage Debt Effectively
While adhering to a budget will likely keep you from accruing overwhelming debt, we understand that sometimes unexpected circumstances can result in significant debt. When this happens, it’s imperative to take action quickly. There are a number of customized solutions, such as those we offer here at Broadstar Financial, for easing the burden of debt and improving your financial situation. By addressing these challenges early on, you’ll be better positioned to transition into retirement in the right financial circumstances.
Learn more about savings and money management solutions by reaching out to Broadstar Financial today.