Planning for your future can be somewhat daunting with all the information available out there. Here are three practical and straightforward strategies to jumpstart your nest egg for retirement.
1. MAXIMISE YOUR 401K EMPLOYER MATCH
It’s no secret that during the 2008 financial crisis, several businesses either reduced their 401k matching program or removed it completely. Fast forward to the present and we find that more companies are offering matching programs, yet assorted employees are still failing to capitalize on this opportunity.
Each company has a unique 401k matching program structure, and it is advised to check with your HR department to fully understand how yours functions. Briefly put, a 401k match is when your employer agrees to equal your contribution up to a specified percentage. One mistake some employees make is depositing a large amount into their 401k at the beginning of the year, a concept called “front-loading”. This can be disadvantageous as most employers match 401k contributions per pay period. Therefore, putting all your money in at once may make you lose out on these matches. Also, it’s crucial to note that you need to contribute a certain percentage of your paycheck to qualify for a match.
So, make sure to engage with your HR department to comprehend your employer’s matching policy. And remember, don’t be too proud or shy to ask questions about your 401k matching program. This is your retirement money, and you could be missing out on additional funds from your company.
2. CONSIDER OPENING AN INDIVIDUAL RETIREMENT ACCOUNT (IRA)
An IRA can help you further save for retirement, either in addition to your 401k or as a standalone device if your employer doesn’t offer a 401k or if you’re self-employed. However, it’s worth mentioning that you cannot contribute to an IRA if your income exceeds $127,000 per year as an individual or $188,000 for a couple filing jointly.
Setting up an IRA is a straightforward process; choose a well-known company like Vanguard or Charles Schwab, enter your information and create an account. Next, decide what type of IRA suits you better: Traditional or Roth. With Traditional IRA, your contributions reduce taxable income, but you’ll be taxed when withdrawing. With a Roth IRA, upfront deductions don’t apply, but you are not taxed when withdrawing. Remember that IRA contributions are capped at $5,500 per year for those under 50, and $6,500 for those over 50. Therefore, having other retirement savings options alongside your IRA is advisable.
3. SPREAD YOUR INVESTMENT RISKS
“Diversify your investments” – this common advice means you shouldn’t place all your assets in one basket. Avoid investing 100% in stocks lest market crashes leave you high and dry. Similarly, pouring all your funds into real estate could leave you stranded in case of a severe market downturn.
Investing in a mix of stocks, bonds, foreign investments, real estate, and cash equivalents provides a shield against losses and better returns. If investment intricacies seem like Greek to you, consider hiring a financial advisor. They can help you understand your investor profile, whether conservative or aggressive, and guide you on the perfect balance of stocks and bonds you should hold.
Do you have any other investing tips to share?
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