Any working adult should think about how to save for retirement. But what is the best way to get started? Listed below are a few tips on how to set aside funds to make the most of what you have – and be ready for the future.
1. Start early
Set aside a small portion each month and it will accumulate over time. Your returns can compound over the years and build up into a healthy nest egg. For example, if you set aside $100,000 at a compound rate of 5% over 30 years, it will increase to over $400,000.
2. Invest in real estate
With the fluctuations in the real estate market today, there are plenty of distressed sales (bank owned properties and short sales) available today. You may be able to purchase a property at below market value. Over time, the majority of real estate does increase in value, so now is the time to buy.
3. Save your money in a variety of investments
By diversifying your investment portfolio, if one investment does not fare well over the years, you do not lose all your money. There are plenty of investment options (stocks, mutual funds, CDs to name a few) that offer varying levels of risk to meet individual needs.
4. Invest in Annuities
An annuity is a life insurance product that allows for the accumulation of funds tax-free. It typically will allow for a guaranteed distribution of funds, with a minimum age requirement before funds can be accessed.
5. Invest in a 401(k) Plan
Many employers offer employees the opportunity to set aside part of their paycheck by investing in a 401(k) account, often matching the employee’s contribution. It helps the employee save yet reduces the amount of taxable income. Interest accumulated in this type of account is not taxed until the funds are withdrawn.
6. Invest in an IRA
Individual retirement arrangements (IRA) allow individuals to contribute funds while reducing their taxable income. Withdrawals can be made without penalty after the individual reaches a specific age. The maximum allowable contribution was at $5,000 in 2010.
7. Safer Investments
For those who are already older in age, safer investment options such as government treasury bills or bonds or even a certificate of deposit (CD) may be more appropriate. You run less of a risk in losing your investment.
The choices you make today can have long-lasting effects. By making smart investment decisions now, you can help ensure a relaxing retirement with sufficient funds saved.