Building a retirement fund is much more of a marathon as opposed to a sprint. It involves years of planning and even more years of carrying out the plan through. Unfortunately, many find this task too daunting or realize that they don’t really know where to get started. When planning for something with such a long time horizon, it can be easy to put it off but, the earlier you start, the easier it will be to reach your ultimate retirement fund goals. So, what are some viable strategies for building your retirement fund?
- Understanding The Different Types Of IRA’s
- Understanding How Each IRA Works
- Never Leaving Money On The Table
- Having Asset Backed Retirement Accounts
- Making A Plan And Sticking To It
Understanding The Different Types Of IRA’s
There are two main classes that Individual Retirement Accounts (IRA’s) can be divided into. The first is a traditional IRA. A traditional IRA involves putting money into an account before it has been taxed. This way, your annual income is viewed as less in the eyes of the IRS which may lower your tax bracket thus increasing your net income each year. The second form of IRA is a Roth. Roth IRA differ in that the money put into this retirement account comes out of your net income. This means taxes have already been paid on this money. There are advantages and disadvantages to both of these IRA types which we can discuss in more detail.
Understanding How Each IRA Works
Each type of IRA has a limit for how much your can contribute each year. Starting in 2020, both IRA types cap your retirement savings at $6,000. The difference in these two is understanding when you pay taxes. A traditional IRA involves forgoing tax payments when you place the money in the IRA and instead has you pay the tax in retirement when you take the money out of the account. A Roth IRA has you pay taxes before putting the money into the account and then allows you to take it out tax free in retirement. Typically, those who would expect to be in a lower income tax bracket during retirement opt for a traditional IRA while those who might expect their taxes to be higher in retirement would want to move in the direction of a Roth IRA. For both IRA types, withdrawals can be made, penalty free, beginning at age 59 and a half.
Never Leaving Money On The Table
Most commonly found with employer sponsored retirement plans, some plans offer a match for any contributions you should make to the retirement account. For example, some companies offer a 50% matching contribution to your retirement account up to a certain percentage. This means that if you contribute 6% of your salary, the company will match 3% of your salary to the account. In this case, contributing any less than 6% would mean you are leaving essentially “free” money on the table.
Having Asset Backed Retirement Accounts
While all IRA’s contain slightly different assets, many future retirees feel more comfortable with a precious metal IRA. These IRA’s can be traditional or Roth but instead of using the money to buy stocks, they invest in precious metals. A gold backed IRA, for instance, physically purchases gold with the money you place into the account to ensure that a physical asset exists as opposed to a digital receipt for ownership of a stock. To do this, you can simply request funds from your IRA that can then be used to purchase gold from a trusted broker of precious metals.
Making A Plan And Sticking To It
One of the best indications of whether your retirement will go smoothly or be a rough journey is how well you have planned for it. If you simply save money when you can or whenever you feel like, the odds of success are greatly diminished. If, however, you develop an actionable plan early on that you stick to over time, your odds of success greatly increase. This plan can look different for everyone. The key is to find one that works for you, and then stick with it.
Whether you are looking to live luxuriously in retirement or want to settle down to a more simple lifestyle, a retirement fund is necessary. By better understanding possible retirement savings vehicles and developing a plan to save, you are well on your way to financial success.