Most employed Americans do not save up for retirement. According to research conducted by Bankrate, more than 21% of the American population does not save any of their yearly income. This is a concerning figure because experts recommend saving between 10% to 20% for your retirement. If you have not taken action and started saving for retirement yet, this is the best time for you to begin investing in yourself – here are a few tips to help you get started.
1. Save to Your 401(k)
If you qualify for the traditional 401 (k) plan provided by your provider, you can contribute pre-tax money, which offers a significant advantage. Take, for instance, someone that falls in the 12% tax bracket and intends to save $100 for each pay duration. Since the money gets automatically deducted from your paycheck before assessing federal income taxes, the total amount you pocket only reduces by $88, including the cost of applicable state and Social Security and Medicare tax. This allows you to invest a more significant percentage of your income without impacting your monthly budget significantly.
If your employer uses a Roth 401 (k) plan, you first need to analyze the income tax bracket you will fall in during retirement to decide whether it is a worthy investment.
2. Open an IRA
Creating an Individual Retirement Account (IRA) can go a long way in helping to save for retirement. The available options include a traditional IRA or a Roth IRA. Contributions sent to a standard individual retirement account may qualify for tax deductions, and the investment earnings can potentially grow tax-deferred until you start making withdrawals in retirement.
The Roth IRA, on the other hand, makes for an excellent option for people who meet the phase-out income limits based on the federal tax filing status. Roth IRA accounts get funding from after-tax contributions, so qualified distributions inclusive of earnings are free from federal taxation after turning 59½.
3. Invest in Mutual Funds
A mutual fund refers to an investment company that owns various assets and sells shares to its investors. When you invest in a mutual fund, you buy the right to a specific percentage of the returns generates by the bonds, stocks, and other assets. With mutual stocks, all stakeholders share the profits and losses. The success of a mutual fund depends on the fund manager and the investors. When an investor decides to sell the shares they have in a mutual fund, the manager may have to liquidate the holdings in the portfolio, resulting in significant losses for the fund. The losses affect the other investors.
Saving for retirement does not have to be a hassle. Get your credit score back on track and start saving up for retirement as early as now. Are you feeling stuck and in need of cash to push you forward? Tio Rico is here for you. Get in touch with us today and we’ll advise you on the best step to take.