Saving less for retirement now may cost you ‘tens of thousands’ later
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Locate the right retirement account
Royal stated that one of the main reasons people don’t save enough money for retirement is because their employers do not offer a retirement savings program.
However, this should not stop you investing for your retirement years.
You can still set aside funds for individual retirement and then invest them to grow the money.
Traditional IRAs allow you to make pre-tax contributions, which can lower your taxable income. But, you’ll have to pay levies for withdrawals in retirement.
Roth IRAs allow you to contribute earnings which have been subject to tax, thus allowing for tax-free retirement withdrawals. The best part is you may be able to withdraw your contributions tax-free. However, any earnings from money that has been invested could be subject to an additional 10% penalty or taxes depending on how old you are and how long it has been.
Your maximum contribution IRA accounts in 2022The minimum age to apply is 50 years old or older. For those 50+, the fee is $6,000 and $7,000 respectively. Every account may also be subject to certain restrictions. income phase-out ranges.
Maximize your retirement savings
Savings will increase if your employer offers a 401k. Savers have the option to save up to $20,500 this year or $27,000 if they are 50+.
Royal says that a 401(k), is where you need to start if you want to boost your retirement savings.
One reason is that many employers offer match. This means they will put money in for you if you contribute up to an annual amount.
Royal stated that the match is cash and should be used to your advantage. He said you should only look into Roth IRAs as an alternative investment option.
Invest in growth
After you are clear about which accounts you prefer, then you can start to look at investments.
The best potential for long-term growth is found in stocks. Your total stock exposure will be more important than your investment in stocks. S&P 500 IndexRoyal stated: a growth stock, or a value stock fund.
If you’re not yet retired, stocks can be a good way to increase your risk exposure. Royal stated that long-term attractive returns are possible if you remain invested in the market’s fluctuations.
For investors just beginning, it can be difficult to find the perfect asset mix. You might consider a target date fund that is based on when you plan to retire. As you get closer to retirement, target-date funds automatically adjust their asset mix and move toward conservative bonds once you have reached your preferred date.
Royal stated that even when you are retired, stocks can still be beneficial to you. This is because your years of non-working could span 20 or more years.
He stated, “Just to have that growth in your portfolio later, even in retirement gives you more options.”
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