planning for retirement

Four Steps to Start Planning for Retirement

How to Start Planning for Retirement?

It’s very easy to put off planning for retirement. 

Many of us hardly put much thought into retirement planning after all who wants to think about getting old. 

Plus, retirement planning often seems hard or tedious. Where do you even start? What retirement account should I open?

And truthfully, there are just so many other things to think about, like paying off debt, establishing your career, getting married, or even buying your first home.

So it’s not hard to see why planning for retirement often gets thrown to the side and is not a top priority for many of us. 

But planning for retirement doesn’t have to be hard or time-consuming. You just need to carve out a little time to understand the retirement planning process and the steps you need to take to get started.

Continue reading to learn four simple actions you can take to start planning for retirement.

  1. Start Saving
  2. Open a Traditional IRA 
  3. Start Contributing to a 401(k) Plan
  4. Rollover Your IRA

Start Saving

One of the first steps you can take to start planning for retirement is saving. Similar to saving for the downpayment on a house, wedding expenses, or a big vacation. You should also start saving for retirement. 

Start saving for retirement as soon as you start working. Saving allows you to set aside a small amount of money from your paycheck each month to go towards your retirement goals. 

One of the benefits of saving for retirement is compound interest. Compound interest is the interest you earn on your initial savings deposit called the principal, combined with all the previous interest you earned on previous deposits. 

So you are making more money on the interest you earn overtime. This interest will continue to compound over time, giving you more money in your retirement account.

Open a Traditional IRA 

You might be wondering what an IRA is? An IRA is an Individual Retirement Account designed specifically for saving for retirement. Anyone can open an IRA account and most commercial banks, or financial institutions offer IRA accounts. 

And similar to a regular savings account, you can use it to save for retirement. But an IRA gives you much more advantages than a regular savings account. 

An IRA account allows you to save for retirement with tax-deductible contributions and tax-deferred savings. What this means is that in many cases, you can deduct your IRA contributions when you file your taxes, and you don’t have to pay taxes on the money you earn in your account until you are ready to withdraw the money when you retire.  

The government sets the amount of money you can contribute each year to your IRA. In 2019 the max you can contribute to your IRA is $6,000 or $7,000 if your age 50 or older. 

An IRA also allows you to choose how you invest your retirement savings. 

Depending on your specific situation, there are a few other types of IRA accounts to consider, but most people go with a Traditional IRA to start. 

Benefits of an IRA

  1. Save for retirement
  2. Potential tax savings
  3. Take control of your retirement
  4. IRAs for specific situations

Start Contributing to a 401(k) Plan

If you are employed and your company offers a 401(k) plan, it’s a good idea to enroll in your companies 401(k) plan and start contributing as soon as possible. 

What is a 401(k) plan?

A 401(k) plan is an employer-sponsored retirement plan that allows employees to save for retirement. It’s usually one of the benefits employers offer to employees as an incentive to work at that company and is an easy way to start saving for retirement.

Contributions are automatically withdrawn from your salary, and those contributions are tax-deferred. That means you don’t pay taxes on those contributions upfront. 

One of the main advantages of a 401(k) plan is that many companies match your contributions to the plan as well. A company I worked at matched up to 6 percent of my contributions up to a certain amount. This means for every dollar I contributed they matched that amount by up to 6 percent. This is basically free money you are getting that will go towards your retirement savings. 

Not all employers offer a 401(k) plan, so if your company has one, take advantage of it and use it to start saving for retirement. 

Benefits of a 401(k) plan

  1. Earn a tax break on retirement savings
  2. Save for retirement
  3. Company match programs
  4. You can contribute up to $19,000 per year in 2019
  5. You can contribute to both a 401(k) and IRA

Rollover Your IRA

If you switched jobs and had a 401(k) plan with your previous employer, it might be a good idea to roll over your plan into a rollover IRA. 

What is a Rollover IRA?

A Rollover IRA is an account that lets you transfer your old employer-sponsored retirement plan into an IRA. Instead of just withdrawing that money from your old 401(k), with a Rollover IRA, you can continue to save for retirement and preserve the tax-deferred status of your retirement savings without paying current taxes or early withdrawal penalties at the time of transfer.

You also have more control and visibility of your retirement savings in your Rollover IRA account, while avoiding the sometimes hefty fees associated with the administration if your 401(k) plan. 

Benefits of a Rollover IRA

  • Save for retirement
  • Actively manage your retirement portfolio
  • Potential tax savings
  • Build assets
  • Avoid withdrawal penalties

Why should you start planning for retirement?

“Failure to prepare is preparation for failure.” This was a concept I learnt early in life. I used to think about it a lot when I was in high school and college studying for exams. If I didn’t take the time to study and prepare for my exams I would almost always get a very low grade. 

Ever since then I realized preparation plays a key role in achieving success in almost anything we do. Retirement planning is no different.

Planning for retirement is one of the steps you should take to secure your financial future. If we don’t take the time to prepare for the future, we are ultimately setting ourselves up for failure. None of us knows what will happen in the future, but with God, on our side, most of us will live well past the age of retirement. 

And although we hope to be healthy and active, the truth is we won’t be able to work forever, and you may not want to even if you could. So having a retirement plan and money set aside to cover your day-to-day expenses is critical.

And as you can see, by starting small, it’s not as hard as you might think it is. It just involves taking the time to become aware of your options and proactively taking steps to get started. 

And if you are reading this article, that means you are one step closer to planning for your retirement. 

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