How to Get the Most Out of Your Retirement

Here is a shocking statistic: Nearly half of all American families have no retirement savings at all. This is astounding, considering many of these people do not want to work when they are of retirement age. The big question is WHY? Why are there so many people who do not save for retirement, but do want to retire? Many Americans believe they will just be able to live off social security, but social security was never intended to be the sole source of income. It is only supposed to be a supplement.

It is crucial that everyone begin to save for retirement today. Not tomorrow. Not next week, or next month. Today, because otherwise they will continue to put off saving for retirement until it is too late. Here are five steps you can take to set yourself up for the best possible retirement:

1. Get Advice

Whether you get your advice from a financial advisor, a parent, a mentor, a friend, or the internet, you absolutely must get advice. There are people who spend literally years researching and studying to be able to become financial advisors. Ask around to find someone who can help you. Ask your friends or colleagues if they recommend anyone. If not, think of the most financially savvy person you know, and ask that person. You would be surprised at how willing people are to help others who want to help themselves.

As a last resort, or if you truly are an excellent researcher, resort to our great friend, Google. The number of financial institutions that provide completely free financial advice on the internet is mind-blowing. Simply Googling “how to save for retirement” or “the best retirement account for [insert whatever you are – elderly, college student, executive, etc.]” and you will be shocked at the number of articles and completely free advice that populates onto your screen. If you still do not know what to do, go talk to someone who works at your bank.

2. Create and Stick to a Financial Plan

This step cannot be stressed enough. It is essential to your financial future that you come up with a plan. This will allow you to create an end goal, as well as mini-goals throughout your working years. Additionally, the most benefit is gained from compounding interest. If you have never heard of this term, follow Step 1 above.

A fantastic tool for you to use as you formulate your financial plan is to utilize a retirement calculator. This will help you come up with the amount you will need at retirement, and the amount you must save monthly or yearly to reach that goal. Again, Google is the perfect resource for this, as you can google “free retirement calculator” and numerous options will pop up. Additionally, most banks provide free retirement calculators on their websites.

Once you have formulated a financial plan, it is best if you put it in writing, rather than just keep the information in your head. You may want to place the plan, which should include some goals, somewhere easy to access so you can review it regularly. Decide on how often you would like to review your financial plan, and then stick to your schedule. You might want to look at the plan quarterly, bi-annually, or annually to assess your progress, or maybe you have the personality that would like to review your plan every month. Whatever you decide, stick to your plan.

3. Max Out Contributions

This step is frequently skipped by people. Many people are too afraid that they will need the money, so they decide to only save a very small amount from their earnings. This is more common in lower-income households. This is a huge mistake. What often ends up happening, is that the “money that might be needed” just ends up getting spent. You are far better off coming up with a monthly budget that includes a maxed-out amount that will be dedicated to retirement, and then forcing yourself to stick to your budget. If you need to have a reserve savings account, then do that for emergencies. If you max out your contributions, you are maximizing the amount you will have at retirement. If you dislike working now, imagine how you will feel in 30 or 40 years. The last thing you will want when you are older is to need to work just so you can survive.

Additionally, you should undoubtedly make the most of your employer match, if any. A lot of employers provide retirement contributions as a benefit of employment. If your employer does this, and say matches up to 5% of your salary, then you should contribute 5% of your salary to your retirement at a bare minimum. If you can afford to contribute more, then you should, as that is how you will get the most benefit out of the compound growth of your account. The beauty of a 401k is that it miraculously allows you to reap the benefit of compound growth tax-free. You contribute pretax money to the 401k, which lowers your income taxes. The amount in your 401k then grows tax-free. Who could possibly complain about that?

4. Avoid Loans and Distributions

This step is also frequently skipped by people. What good is it to put money into an account that grows tax-free and is intended for retirement, if you are just going to take the money out now? If you take a loan against your account or take distributions, then the amount of money that would otherwise grow tax-free is reduced, thus decreasing the amount that could be available to you at retirement if you just left the account alone. Similarly, you should have your distributions reinvested into your retirement account. There is no reason to take this money when you can instead just reinvest it into your future. It is important to break the cycle of immediate gratification, and instead look at your life from a long-term perspective.

5. Start Saving

All this information is useless unless you actually start saving for retirement. Start today. You can begin getting advice after you finish this article. As you get advice, create your financial plan. Write it down. There is no shame in revising your plan as you acquire new information, but you must create and then stick your financial plan. Next, max out your contributions and take advantage of your employer’s contributions, if any. This is free money that you miss out on if you do not invest at least the percentage of your salary they will match. Last, now that your plan is in effect, avoid taking loans or distributions from your retirement account. As you save for retirement, compound interest will be your best friend. Let your best friend grow and you will reap the benefits when you are of retirement age and you do not want to work anymore.

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