It is very difficult to determine exactly how much you will need in Retirement, because everyone’s spending habits are different. If you are a frugal person, you will need much less than someone, say, not as frugal. The best way to find out how much you will need is to do a budget now and determine your monthly spending habits. You will also need to include health care costs and health insurance post-employment. When considering how much to save, it may be a good idea to assume Social Security will not be around or will be minimal by the time you retire. You should consider it a bonus if you receive any significant income from Social Security. With that being said, here are some retirement saving tips that will help you retire better.
Max Out Your HSA
The Health Savings Account (HSA) is a fantastic savings plan to pay for your health expenses. The HSA is typically available to those with a high deductible health insurance plan. Check with your employer about automatic deduction from your pay check. A single person can contribute up to $3,600 a year (2021) in pre-tax money. You will never have to pay taxes on this contribution as long as it used for health care expenses. The best part with the HSA is that the contribution rolls over year after year. It is your money, in your bank account. So, if don’t have many health bills you can have a nice little savings account ready for when you need it. If you can afford to max it out, do it. You will be glad you did.
Lively HSAs are fee-free for individuals and families. Sign up today and start saving for your health.
Fund Your Roth IRA
The Roth IRA is funded with money post-tax, meaning you have already paid taxes on the money you are contributing and will not be taxed again in the future. The reason I would say to fund the Roth IRA first is that it grows tax free. That means any interest you earn on your investments is tax free when you withdraw it. So, the younger you start, the longer it has to grow tax-free savings. As an example, if you contribute $5500 a year for 30 years, assuming 7% interest, your fund will be worth roughly $600,000. Your total contribution will be $165,00. So that means the remaining $435,000 is yours tax free. Pretty sweet, yes?
Another great benefit with the Roth IRA is you can withdraw the contributions at any time, tax free. Now this is just the contributions, not the interest. Of course, you would only want to withdraw that money if there was no other choice and needed the money because you will be losing out on tax-free earnings if you take it out.
Some employers are now offering the Roth IRA as part of their retirement savings options as well. That will make it much easier for a lot of people to get more involved with this great investment strategy.
Roth Restrictions
There are some restrictions with the Roth IRA. One restriction is there are income limits. If you make over a certain amount of money each year you will not be able to contribute. Now that limit is pretty high, $140,000 for a single person and $208,000 for couples in 2021 so take advantage of it while you are in the early stages of your career, or late in your career if you are still under the limit.
Another restriction is the contribution amount limit. For 2021, those under the age of 50 may contribute up to $6,000 while those age 50 and over can contribute up to $7000.
The Roth IRA is one of the most misunderstood investments out there. The lack of awareness about this tax busting investment is staggering. This is one investment you can’t afford to miss. Check out our article on the Benefits of a Roth IRA here.
Retirement Savings Contributions Credit
A little known Retirement Savings Contributions Credit, also referred to the Saver’s Credit, is perfect for those in the middle to lower income range. You may be able to take a tax credit for making eligible contributions to your IRA or employer-sponsored retirement plan. Depending on your adjusted gross income, the amount of the credit is 50%, 20% or 10%. You may check the eligibility requirements on the IRS website here.
2021 Saver’s Credit
| Credit Rate | Married Filing Jointly | Head of Household | All Other Filers* |
|---|---|---|---|
| 50% of your contribution | AGI not more than $39,500 | AGI not more than $29,625 | AGI not more than $19,750 |
| 20% of your contribution | $39,501 – $43,000 | $29,626 – $32,250 | $19,751 – $21,500 |
| 10% of your contribution | $43,001 – $66,000 | $32,251 – $49,500 | $21,501 – $33,000 |
| 0% of your contribution | more than $66,000 | more than $49,500 | more than $33,000 |
*Single, married filing separately, or qualifying widow(er)
Eliminate Debt – Credit cards
High interest debt can derail any savings plan, so get rid of it as quickly as you can. In this day of low mortgage rates and other low interest loans you should not be paying the extremely high rates that are typically found with credit cards. These high interest rates will absolutely kill any chance of saving for retirement. The only debt that you should carry while trying to maximize your retirement savings is a home mortgage or a business loan if you have your own business.
Put Your Savings on Automatic
If you are lucky enough to have an employer that offers a 401(k) type retirement option you should be enrolled. Also, if there is an employer match, you should absolutely be taking advantage of it. That is free money, like a raise, so why would you leave it on the table? You can normally contribute directly from your paycheck, so you can think of it as a self tax. The automatic savings plan is ideal for your long-term retirement portfolio so be sure you are taking advantage of it.
If you are not lucky enough to have the 401 (k) option, you can still have money deducted directly from you paycheck or savings account into an IRA account or other accounts to save for retirement. You can have a Roth IRA and a regular IRA so if you do not have the 401 (k) option it would be a good idea to max out both the IRA and Roth IRA if possible
Buy Used – Cars, Clothes, Electronics
A new car will typically depreciate about 20 percent when it is driven off the lot. Not only that, but it will also depreciate another 10 percent in the next 12-15 months. That is a huge hit if you are trying to save money. Buying a good used car will save you a lot of money and the resale will be much closer to what you paid.
Now think about clothes, electronics, household items, etc. Thrift stores are a fantastic option where you can save 80%-90% off new. You can always try Ebay too for used items that have a lot of life left.
Reduce Expenses
Eliminate expenses that are not adding value to your life. Ditch the cable and use an antenna and a streaming plan. Check your credit card statement to make sure you’re not paying for something you no longer need, like subscriptions or other services you forgot were set up on automatic pay. Lower you grocery bill by purchasing things on sale and stocking up. Also, buy the off brand or store brand items to save even more. If it is something you don’t need, don’t buy it. Check out this article to learn more about saving and being frugal.
Find Another Cash Stream – Work from Home, Sell on Ebay
There are a lot of legitimate work from home job opportunities that allow you to work on your schedule. You can also make a little extra cash by selling on Ebay. Get rid of things you no longer need and make a little money along the way. You can even pick up items at thrift stores or yard sales and sell for a profit. The opportunities are endless, just do a little research. You can pretty much learn anything on YouTube!
Make Yourself More Valuable By Training
If your employer offers training, be sure to take advantage of it. Not only are you getting paid to improve your skills, you may also be training for a promotion or better position elsewhere. You can also learn valuable things for free on YouTube or other sites like https://edu.gcfglobal.org/en/ which has load of free content. Either way, keep learning to keep earning.
Be Tax Smart
Be sure to take advantage of all the tax write-offs you are entitled to take. With so many tax changes the last few years, you may want to check with a tax advisor for help. Or you can use this Free Tax USA program that goes through your return step by step. It will file your Federal Tax Return for free as well.
What is a Good Age to Start Saving for Retirement ?
The most important advice anyone can give you about retirement savings is to just start saving. And remember, the earlier you start, the better off you will be to retire better. For example:
Early Investor: Invests $6,000 per year for 30 years. The final value is $658, 684 with $472,684 of that being interest
Late Investor: Invests $6,000 per year for 15 years. The final value is $175,575 with $79,575 of that is interest.
Late Investor II: Invests $12,000 per year for 15 years. The final value is $351,150 with $159,150 of that is interest.
So, as you can see, the late investor can never really catch up, even when they double their investment. The compounding interest for the early investor is so important for a wealthy retirement. Now this isn’t to discourage anyone who is starting late, because late is better than not starting at all. It is simply showing how beneficial it is to start early. In other words, if you have not yet started saving for retirement, start today.
Thank you for reading our retirement tips article. We’d love to hear your thoughts and any tips you have that might help the other readers.
Please note, these are just tips to help you along the way. We are not financial advisors and you should do your own research before investing and decide what is best for your situation.
Related articles:
What I wish I knew about money when I was younger
Why you should be investing in an HSA
The benefits of a ROTH IRA and how to start saving