What is the best way to save for Retirement?

When saving for your retirement it’s easy to make excuses and put off getting started. It can be hard to plan for something that seems so far away, especially when you have bills to pay now, holidays you’d like to take now, and no idea how long you will live.

A lot of people plan on living a higher quality and more active life in their retirement, yet haven’t made the necessary calculations to ensure this is attainable. For you this could mean taking vacations, spoiling the grandkids or buying a holiday home.

No matter what stage you’re at in your working life, there is no better time than the present to make plans for your future retirement. The sooner you begin saving, the more time your money has to grow. The truth is there is no guaranteed way for everyone to save. You need to find a method that works for you and stick to it. Once you get into this routine, you won’t miss the amount you’re putting into your fund each month, but you will definitely appreciate it when it’s there in the years to come.

Imagine failing to save adequately for your retirement and struggling to get by after a lifetime of work. Having to rely on your kids or working longer than anticipated is a reality nobody would want to face.

It’s often a good idea to have the specified amount automatically transferred in to your retirement account on payday, so it is not a factor when working out your weekly or monthly budget. Where possible, you should always put away the maximum amount that you can into your retirement plan, that way you won’t have to rely on big returns in order to retire. 15% is a good percentage to aim for.

There are a number of online calculators that will help you determine just how much you need to save to reach your financial goal. Use real numbers when working this out, do not guess or estimate. Your retirement income does not just depend on the amount you save, it also depends on the performance of the funds you invest in.
Advisors recommend younger savers to invest their pension savings in equities because although they are higher risk, they are likely to return more over the long term. Conversely, older savers should transfer their pension pot to safer, fixed income products.

The best places to save for your retirement are tax favoured retirement accounts such as IRAs – Individual Retirement Accounts – and 401(k)s. The advantage of these start-up investments is that your employer automatically deducts the money from your paycheck and often matches your contributions.

Retirement planning isn’t something you do once and then assume you’re set for 20 or 30 years. Different variables need to be considered as situations change. Your saving habits could improve as the kids get older, or you could lose your job and be forced to live on your savings until you find something else. You might decide you would like to retire earlier. Go over your plan periodically to monitor your progress and make sure you are still on track.

When you get a raise some of it automatically goes to increase your 401(k) contribution, but there’s nothing to stop you adding extra money to your fund when other windfalls come along, such as tax refunds, bonuses or an inheritance.

Here’s an example of how beneficial increasing your payments with your raise can be: On a $48,200 salary, where a person was contributing just two-thirds of their raise each year, with zero dollars in their 401(k), they would still end up with more than $1.5 million, and the remaining one-third of her raise would give her a little extra to spend each year or help her keep up with inflation as the years go by.

As you approach retirement, you may want to reduce your discretionary expenses and attempt to live on a fixed income. Adjust your asset allocation based on your spending patterns. If you are spending more than your assets are earning, you may have to lower spending and take more risks in the hope of increasing your returns.

Ask for advice. A good financial professional will be able to offer you a second opinion on your plans and offer suggestions on the best strategies for meeting your goals.

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