Let us start with some startling studies. According to the National Institute on Retirement Security, the gap in US retirement savings is in trillions of dollars. In 2007, 7% of those who filed for bankruptcy were seniors and today, a third of homeowners in the retirement age bracket still have mortgage debt. Why is this happening? Did the baby boomers miss out on something? It is time you take your retirement plans very seriously.
Most retired Americans will not have the option of multiple income streams – physically and mentally, it is stressful to pick up new skills or work in new roles. Inflation is another factor that you cannot ignore. The amount that you consider a comfortable sum today will be a pittance in the future.
So just saving money is not a solution – you need to subscribe to a properly designed retirement plan that creates more wealth out of your principal amount. Let us delve deeper.
IRA And 401K – Your Ways To Save For A Good Retirement Life
Individual retirement accounts are one of the most accessible tools to create retirement savings. Along with the 401(K) scheme, IRAs have been a preferred option for millions of Americans for generations. According to Brandon Mink from MinkWealth.com, the only requirement for an IRA is a qualifying source of income.
401K – Basics
We cannot discuss retirement schemes without touching upon the 401K. The 401K schemes are employer generated so there are more eligibility conditions for this when compared to an IRA. If you are employed and your company provides this facility then it is a great way to create retirement savings. You can deposit around three times more than an IRA.
However, most experts suggest that if you have the option of a 401K, it does not mean that you should ignore the IRA option. Open an IRA as an additional retirement plan. Your savings get diversified even further because IRAs provide more flexibility to invest in different sectors.
Investing In Your Retirement Fund – Assess The Risk and Time
How much risk are you comfortable with? Remember that over a period of time, there will be ebbs and flows in the economy and this will reflect on the asset allocation you chose for your IRAs. Do you have the stomach to accept a sudden dip in stocks?
And how much time do you have? If you are under 30 and starting an IRA, you have a longer maturity period to play with – that allows for several economic cycles and you will likely end up with a significantly large amount by the time you retire.
Why Start Your Retirement Savings Early
One clear lesson learned here is that it is best to start early. That gives you more freedom to explore and more space to maneuver with the ever-changing economy. This is evident in the fact that smart millennials are jumping on the IRA game quite early.
If you are in the late thirties or forties, you need to be a lot more conservative since you have a shorter period for your investments to mature. Go easy on the stock punt and dig deeper into bonds and more secure assets. You want to control the impact of the capricious market while also ensuring that your investment returns should theoretically beat inflation rates.
If you have entered a little late in the game, then experts would recommend that you play the safer game and put your money where you can be assured of some reasonable fixed income. And with today’s lifestyles and higher life expectancy rates, you need retirement savings that can carry you on for decades more.
Consult Experts On Retirement Plans
With so many options and market factors to comprehend, it is a wise decision to reach out to an expert and create a viable and strong retirement plan. Taxation is something that vexes even the best of us. What kind of IRA will be suitable for your requirements?
A Roth-IRA, for example, can assure tax-free withdrawals based on some simple conditions. A wealth manager can calculate future financial scenarios preemptively based on trusted data. Along with your IRAs, you also need to consider your estate planning. This should be a part of your larger retirement strategy.
The Bottom Line
Retirement planning is essential. It is your responsibility not only to yourself but also to your family and dependants. Post-retirement is when you can indulge in the things you love. Prepare for this golden phase in the best way possible.