"Live Long and Prosper" With These Retirement Saving Tips
Star Trek’s Spock gave us the real American dream: Live long and prosper. And that dream is more easily achieved when you have a retirement savings cushion.
Maybe retirement is decades away from where you are today. Or perhaps it’s your current reality, and you’re loving every minute. Regardless of your age, there’s never a wrong time to start saving money for your retirement. Even if you’ve done well managing your wealth up to this point, it can be beneficial to review your spending and saving habits to see if you need to make some changes.
And even if you’re already retired, who couldn’t use a little extra cash?
Here are our top tips on saving for retirement, you can start putting to good use today.
Start Saving Today
There’s an old Chinese proverb that says: “The best time to plant a tree is 20 years ago. The second best time is today.”
That’s a powerful statement that reminds us it’s never too late to do something if we can start today. If you haven’t prioritized saving for retirement, there’s no time like the present to start.
An excellent way to get started is to cut out any unnecessary spending. As Spock once said, “After a time, you may find that having is not so pleasing a thing after all as wanting. It is not logical, but is often true.” In other words, resist the urge to spend too much on wants and focus on needs. When you look back in 20 years, you’ll be glad you didn’t wait another year or two to start saving.
Meet Your 401K Match
Money doesn’t exist in the Star Trek universe, so Spock didn’t have to worry about matching 401(k) contributions. But if your workplace offers a retirement plan like a 401(k) and a company match, make sure your own contributions are at least as much as what your company is willing to put up. It’s basically free money on the table, and it can help you grow your retirement savings much faster at a minimal cost.
Leverage Catch Up Contributions
If you waited until your 50s to start saving for retirement, you could take advantage of catch-up contributions to grow your savings faster. Once you reach age 50, you can contribute more than the normal limits to 401(k)s and IRAs.
For example, the contribution limit on a 401(k) for individuals under 50 (who will not be turning 50 that year) is $19,000 for the 2019 tax year. But if you’re 50 or older, you can increase that limit by $6,000 for a maximum total of $25,000.
Understand the Fees and Requirements on Retirement Accounts
Retirement accounts like IRAs and 401(k)s offer several tax benefits, but keep in mind that these benefits can be offset by fees, such as early withdrawal penalties.
For example, Roth IRA funds are paid in after taxes, which means withdrawals after age 59 ½ aren’t taxed (because you’ve already paid that tax). However, 401(k) plans are the opposite: the money you put into the account is tax-deferred and is subject to tax upon withdrawal. You must take minimum withdrawals from your 401(k) by the time you reach age 70 ½, or you may be subjected to penalties.
It’s essential to understand your contribution and withdrawal requirements and tax obligations to ensure you don’t end up using some of your savings on frivolous fees.
Pay Yourself First
You work hard for your money, and even though you may never be as famous as Spock and his Vulcan salute, you deserve to pay yourself well in the form of a financially secure future. This means making saving for retirement a priority, even if it means not living an as luxurious life as you’d like during your pre-retirement years.
For example, instead of spending a raise or tax refund, you may want to divert it into your retirement savings. Rein in your spending to avoid wasting money on non-essential purchases. Don’t pay for your children’s college expenses (at least not all of them) if it means skimping on your retirement savings. Your kids may take out student loans, but there’s no such thing as a retirement loan.
Don’t Take Unnecessary Risks
As Spock once said, “Insufficient facts always invite danger.”
If you started saving for retirement late, it could be alluring to make higher-stakes investments that offer higher potential returns. But consider that with great reward comes high risk. There are no guarantees when it comes to high-interest investments. If there were, then everyone would be investing their money in them, and that’s not the case.
Instead, align your risk with your age. The older you are, the less risky your investments should be. The last thing you’d want is to end up losing a large chunk of your retirement on a bad investment and not have enough time to recover from it.
Whether you’re just starting out in life or you’re already retired and want to cushion your wealth, saving money looks good at any age. You’re never too old to form good money habits, so take advantage of our retirement savings tips so you can live long AND prosper.
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TM & © 2020 CBS. ARR.