Saving enough money for retirement may seem daunting, but the power of compound interest can help. Try to maximize the contributions in your workplace retirement plan and invest your funds, pay down high-cost debt, and examine your budget to identify spending habits that can be eliminated or reduced. Whether you started saving early or are in your later years, there are opportunities to boost your savings with insurance benefits.
Health Savings Accounts (HSAs)
The fear of not having enough money in retirement is one of the biggest worries for most people. However, you can avoid that fear by saving and investing wisely. Start by taking advantage of any matching funds your employer may offer in retirement plans, such as a 401(k), SIMPLE IRA, or 401(b). This is like free money. Ensure you are also contributing enough to get the maximum amount of your employer match.
Another good way to increase the benefits of state retirement plan is by switching to a high-deductible health plan (HDHP). While many consumers may be concerned about the increased cost of an HDHP, it can save you money in the long run. You can pay out-of-pocket medical expenses before your deductible is met without paying taxes. In addition, your account grows tax-free through investment earnings, and withdrawals are tax-free if used for eligible medical expenses. To maximize your HSA, you must reframe how you think about it. Instead of thinking about it as a source of money for your current healthcare costs, you should treat it like a retirement account that can help you pay for long-term care and other medical expenses in retirement. This will require you to max out your yearly contributions and only use the money for qualified medical expenses.
Every new job comes with a stack of forms to sign, initial, and, months later, try to remember where you hastily tossed. But race too quickly through that first-day ritual, and you may miss the chance to take advantage of one of the most valuable employee perks: your company retirement plan. 401(k) plans allow employees to contribute pre-tax dollars into an investment account. When they withdraw those funds in retirement, they’ll pay income taxes at a rate determined by their tax bracket at the time of withdrawal (plus any applicable state or local income taxes). This structure could benefit you if you’re in a high tax bracket now but expect to be in a lower one when you retire.
Whether you have access to a workplace retirement plan, there are ways to save more for your future. The earlier you start, the more your money will grow. This is thanks to the magic of compounding. For example, if two people save the same amount each year, earn the same return on investments and retire at age 67, one will have about twice as much money as the other just by starting at 22 instead of 32.
IRAs (individual retirement accounts) are tax-advantaged accounts that allow you to invest in stocks, mutual funds, and other assets. They come in various flavors, including traditional IRAs, Roth IRAs, SIMPLE IRAs, and SEP IRAs. Some IRAs are available through your employer, while individuals and small business owners can open others.
Reviewing your saving habits each month and considering how you can increase your contributions is important. Often there are small expenses, like auto-renewing subscriptions or dining out, that can be eliminated to free up extra cash. Another option is to set up a savings account and commit to depositing at least a few dollars each paycheck. This will help you meet your long-term goals and avoid relying on Social Security.
Getting to retirement with enough money is the biggest challenge most people face. There are many variables to consider: the type of investments you choose, your health and longevity, your spending habits, your charitable goals, your family’s needs, and more. But if there’s one thing most financial professionals agree on, you should maximize every savings opportunity available. The first step is to examine your budget. Identify areas where you can cut back to free up funds toward your goal. Then look at your tax-advantaged accounts. For example, if your employer offers a retirement plan like a 401(k), determine whether they provide an employee “match.” If they do, it’s worth trying to contribute enough to get the maximum amount of their match. That’s free money and should be part of your strategy to save as much as possible. In addition to a traditional IRA or workplace retirement account, you can also contribute to a Health Savings Account (HSA). These are an excellent choice for people with high-deductible health plans because they allow you to invest pre-tax dollars that grow tax-free until you start making withdrawals during retirement.