Retirement is one of the most important financial goals you will ever set. But it's hard to know how to start planning for something that might be 30 or more years away, especially when you have other pressing financial obligations, such as student loans, a new family, or saving for a home.
But that doesn't mean you should ignore retirement planning. There will always be competition for your money. A new financial obligation will join your list as soon as one drops off. The earlier you dedicate a portion of your budget to retirement planning, the better off you will be in the long run. Here are some tips to help you start your preparing for retirement.
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Start saving for retirement now. It doesn't matter if you are in your 20s or 50s. Starting now is essential to reaching your retirement goals. The earlier you start saving for retirement, the more time you have for compound interest to work its magic. But you shouldn't give up if you get a late start either. There are still ways you can catch up on retirement savings. The key is starting now.
Understand your retirement investing options. There are more investment options today than at any point in history, which can make it difficult to know where to start. Begin with the basics: Stocks, bonds, and mutual funds are tried and true investment options and are among the best opportunities for most new investors. You don't need tricks and gimmicks to make money with your investments. If you don't understand the investment or can't explain it in 30 seconds or less, then invest your money elsewhere.
Most investments involve risk, so it is important to have a well diversified portfolio. Don't let this intimidate you and prevent you from investing. If you don't know where to start, then select a low cost target date retirement fund until you can learn more about asset allocation. Here are some more beginner's investing strategies to get you started.
Don't forget Uncle Sam. Utilize tax advantaged retirement plans when possible. Employer sponsored plans such as a 401(k), 403(b), or the Thrift Savings Plan offer excellent tax benefits. Some plans also come with employer matching contributions, which will help you jump start your retirement savings. Traditional and Roth IRAs also offer excellent tax perks.
It's important to understand how and when your retirement investments will be taxed. Traditional 401(k)s, IRAs, and similar plans give you a tax break in the year you make the deposit. The investments grow without the drag of taxes until you reach retirement, when withdrawals are taxed as regular income. Contributions to Roth accounts are taxed in the year you make the depots, but your savings grows tax free and you can take tax free withdrawals in retirement.
The recipe for a successful retirement. Start now, stick to the basics, and take advantage of tax breaks. Add a little time and the magic of compound interest and you will be well on your way to a well funded retirement.