PensionBee is here to help you be retirement confident - so you’ve come to the right place! Learning how to leverage savings and retirement benefits such as employer-sponsored plans, individual retirement accounts (IRAs), and other savings accounts, will put you on your path to a comfortable retirement.
Assess Your Current Financial Situation
Before you jump into your retirement savings journey, it's important to assess your current financial situation. You can start by determining your monthly income and expenses which will give you a clear picture of your current cash flow. Look at your salary, but consider additional income sources such as side jobs or investment returns.
Then, calculate your existing retirement savings including your contributions to workplace retirement plans and IRAs. Once you know how much you've already saved it'll be a lot easier to set realistic goals.
You should also try to identify areas where you can cut expenses, such as reducing discretionary spending or eliminating high-interest credit card debt. Optimizing your budget like this can help you free up extra money to contribute toward your retirement fund and help you stay on track in your later years.
Set Retirement Goals
You'll want to have some goals to guide you as you develop an effective savings plan, and you can begin by imagining your retirement lifestyle. Where do you want to go? What do you want to do? Are you a traveler, or do you enjoy hobbies?
It's also important to think about other potential expenses such as healthcare that may increase with age. Once you have some of these answers you can calculate how much you might need to save in order to achieve these goals.
Your current age, your desired retirement age, and the anticipated retirement income from sources such as Social Security benefits and employer-sponsored retirement plans will all impact the amount you'll need to save.
Now you can set some goals, but remember, we're aiming for measurable and achievable goals. Break down your savings target into milestones that you know you can hit, such as contributing a certain percentage of your income each month or reaching a specific savings amount by a certain age.
Take Advantage of Employer-Sponsored Retirement Plans
Employer-sponsored retirement savings plans are among the most effective methods for boosting your retirement savings. You can start by enrolling in your employer's plan such as a 401(k) or Roth 401(k) if you aren't already, as these plans offer valuable tax benefits and investment options. Make sure to contribute enough to receive any employer match that you are entitled to because employer contributions give you essentially “free” money that can significantly enhance your nest egg.
Once you get more comfortable with saving you can start increasing your annual contributions over time, especially when you receive extra money in the form of salary increases or bonuses to account for inflation. By maximizing your participation in your employer's plan you'll receive the full advantage of tax-deferred growth on your money and set a solid foundation for a more secure retirement.
Open an Individual Retirement Account (IRA)
Opening an IRA is a smart strategy for enhancing your retirement savings beyond what you can achieve with workplace retirement plans. The two main types of IRAs: traditional and Roth.
A traditional IRA allows you to make pre-tax IRA contributions which can lower your taxable income. PensionBee offers a number of strong plans for customers. A Roth IRA provides tax-free withdrawals during retirement if you meet certain conditions. Either can work for you, but to see which is best you should consider your current tax bracket, the anticipated tax rate you'll face during retirement, and your overall financial goals.
After making your decision, open an IRA with a reputable financial institution or IRA provider like PensionBee and start making regular contributions. This will help you access the incredible benefits of compound interest and significantly grow your savings over time.
Diversify Your Investments
Diversification is a fundamental principle of effective financial planning that can help you mitigate your risk and increase the odds of positive returns. To diversify, you're simply going to allocate your investments across different asset classes such as stocks, bonds, mutual funds, or exchange-traded funds (ETFs) which will protect your savings from market volatility and ensure you're looking at a more stable growth trajectory. Not all investments perform the same way under varying market conditions, of course, so a well-diversified portfolio can help cushion you against losses in any one area. PensionBee offers several different retirement plans to help you find a risk tolerance you’re comfortable with.
You should also rebalance your portfolio from time to time in order to maintain your target allocation, which involves adjusting your investments as market fluctuations occur. Doing so will help you stay aligned with your retirement goals and contribute positively to your overall investment strategy.
Take Advantage of Tax-Deferred Growth
Tax-deferred growth is a powerful tool that you can use to boost your retirement savings over time. When you contribute to tax-advantaged accounts like 401(k)s and traditional IRAs, those contributions are made with pre-tax dollars which reduce your taxable income for the current year. This means your investments can grow without being milked for income taxes, which will result in faster compounding of your retirement fund. You can also maximize the benefits of these tax advantages by contributing the maximum allowable amounts to your tax-advantaged accounts each year (subject to contribution limits).
It's important to consider the long-term tax implications of your investment choices as some assets may be more tax-efficient than others, but by strategically leveraging tax-deferred growth and minimizing your tax liability you can really accelerate your progress and get a lot more savings built up.
Develop a Habit of Saving
When you turn saving into a habit it becomes a lot easier to build a robust retirement fund and work toward succeeding in your financial goals. One effective strategy you can use is to automate your savings by setting up direct deposits into your retirement accounts or savings accounts. This will make sure that a portion of your income is saved before you even see it—and this "out of sight, out of mind" method could be just what you need to stick to a savings routine.
As you get more comfortable with putting money away you can start to contribute a higher percentage of your income or simply contribute the full amount of any raises or bonuses. Eliminating unnecessary costs such as dining out or paying for monthly subscription services is also a good way to cut some financial fat, and you can increase your opportunities for earning extra income by doing side gigs or starting a freelance business.
Monitor and Adjust Your Plan
As you save and develop good saving habits you'll be well on your way toward building up a solid retirement fund. But you'll still want to review your savings and investment past performance to assess whether you're making progress toward your goals. Things change all the time, and a new job, marriage, or the birth of a child can make you rethink your savings strategy pretty quickly.
PensionBee Can Help Secure Your Financial Future
Saving for retirement requires you to assess your current financial situation, set clear goals, and take advantage of tax-advantaged savings vehicles. Opening IRAs, enrolling in employer-sponsored retirement plans, diversifying your investments, or rolling your old 401(k) accounts into a PensionBee IRA are all great options for building a robust retirement fund that will provide you with reliable financial security throughout your golden years. PensionBee has helped over 250,000 customers be retirement confident. Please let us know how we can help you.
