This Is the Basic Intro to Having a Retirement Fund That Everyone Needs to Read

by Damian Davila on 16 May 2014 0 comments

Planning for retirement should be on your mind.

50% of Americans state that having enough money for retirement is their top financial goal. However, there is still room for improvement. Back in 2011, 25% of individuals age 46 to 64 reported having no retirement savings at all.

You cannot expect social security to cover all of your expenses during retirement, so you need to build a nest egg that supplements your income. It is time to take action and jumpstart your retirement planning. Here are some great tips to start your retirement fund and maximize the time you have available.

Start a Retirement Account

No matter at what point in life you are, you need to start a retirement account if you don't have one.

  • If you are far away from your retirement days, you should consider a retirement account that allows you to defer taxes (e.g. 401(k) and traditional IRA) until retirement age. You are most likely to be in a lower income tax bracket when you retire. Plus, your taxable income is effectively reduced every year!
     
  • If you are in your 50's, then you should look into a 401(k), 403(b), SARSEP, or 457(b). With these type of retirement accounts, individuals age 50 and up can make $5,550 in catch-up contributions in 2014.
     
  • If you know that you are very likely to be in a higher income tax bracket during retirement, then you would benefit from opening a Roth IRA. By contributing with after-tax dollars, you take the IRS hit upfront.

How to decide what you need? Learn about your retirement account options, and then see a financial professional.

Maximize Your Contributions

You need to not only commit to fund your retirement account, but also to maximize contributions every year. The IRS sets limits as to how much you can contribute each year, so every year that you don't meet that limit you are reducing the potential size of your nest egg.

Also, take advantage of employer-sponsored retirement programs. As many as 90% of workers participating in a company retirement plan save for retirement, while only 20% of those without one do. If your employer offers a retirement matching-program, take advantage of as it will help you maximize your contributions faster.

And Beware of Limits

It is important to keep an eye on your contributions so that you do not exceed the annual limit set by the IRS. For example, the ceiling for 2014 contributions for a 401(k) in 2014 is $17,500 ($23,000 for those age 50 and up). It is your responsibility, not your employer's, to check that you don't exceed the contribution limit. The deadline to take out excess contributions is the day before filing your federal taxes, otherwise you will face stiff penalties from the IRS.

Take Control of Your Debt and Build an Emergency Fund

In 2014, 58% of workers and 44% of retirees report having problems with their levels of debt. If a big chunk of your paycheck is going towards monthly credit card bills and loan payments, this means that you are likely to have very little, if any at all, for your retirement accounts. Remember that if you want to be able to maximize your contributions, you need to have money left at the end of every month.

Life happens, so you need to be ready for those rainy days: Get started on your emergency fund!

Balancing a retirement account, an emergency fund, and a debt payment plan can be a bit overwhelming, but with some planning (and dedication), you can do all three.

Designate a Beneficiary

An often overlooked step in retirement planning is filling out the beneficiary form for your retirement accounts. If there is a specific way that you would like to allocate your retirement account in case you pass away, then it is critical that you fill out the beneficiary form. This will it make easier for your beneficiaries in case of a probate.

Consider Semi-Retirement

With life expectancy reaching 84 for men and 86 for women, the reality is that you might become bored if you retire at 65. There are physical, social, and mental benefits to staying in the workforce past age 65.

There are three main financial benefits of semi-retirement.

First, Social Security will grant you delayed retirement credits if you wait until full retirement age 70. This maximizes your monthly Social Security checks in the future.

Second, you can delay taking withdrawals from your 401(k) plans until full retirement age.

Third, it buys you extra time to reach your retirement goal. This last one is particularly useful if you got a late start on your nest egg.

It's Never Too Early — or Too Late — to Start

It is never too early or too late to start a nest egg, but you need to have a plan. By laying out a strategy, you are more likely to maximize your contributions and meet your retirement goals. Remember that it ain't over till it's over! The time to start your retirement account is now.

What is keeping you from saving for retirement? Let me know in the comments below.

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