It's never too early to start saving for retirement. These days, most agree that you can’t rely solely on social security to meet your income needs after you retire. The earlier you start, the more you will have saved by the time you choose to stop working. If you’re at a loss and don’t know how to save for retirement, the following tips will help you get started:
How much should you save?
While the percentage varies depending on your age and when you started saving, Fidelity Investments suggests that you put away at least 15% of your annual income toward your retirement. Of course, the amount may vary based on when you start and what you consider sufficient funds to enjoy a comfortable life as a retiree.
Consider increasing the saving percentage up to 18% if you have started saving later in life. In an example shared by Merrill Edge, a 25-year-old person who saves $75 per month will end up accumulating more retirement savings by age 65 than someone who starts saving $100/month at the age of 35. If you haven’t started putting money away for your retirement yet, do so now.
Different ways to save for retirement
There are several ways to save for retirement. These are some of the options available to start a retirement savings account today:
401(k)
If your employer offers it, a 401(k) can be one of the easiest ways to start saving. Some employers even match a portion of your contributions. Consider contributing as much as your company is willing to match for additional savings.
To give you an example, let’s say you earn $50,000 a year and contribute $2,500 towards your retirement plan. If your company matches 50% of your contributions up to 5%, you would receive an additional $1,250 every year. That’s free money added to your retirement savings.
Starting in 2019, the IRS will increase contribution limits to $19,000 a year if you’re under 50 years old.
Open an IRA
Another option to save for retirement is opening an IRA account. IRA stands for Individual Retirement Account. Just as the name implies, it’s a savings account you establish through a financial institution. The amount you can contribute will increase to $6,000 in 2019.
The main difference between a 401(k) and an IRA is that with the latter, you have more investment choices and control over your plan. The downside is that, unlike the 401(k), with an IRA account no employer will match your contributions.
A good strategy to follow and maximize on your savings is opening a 401(k) through your company and contribute enough to be matched, and also open an IRA account to save even more. If you're married, both you and your spouse may open IRAs.
Tax-deferred annuities
A third alternative to save for retirement is annuities. These are offered through insurance companies and are available with a fixed interest rate. As Fidelity states, a deferred annuity “can help cover your essential expenses in retirement along with other sources of guaranteed income like Social Security, pensions, and other annuities.”
The main advantage of a tax-deferred annuity is that, with this type of retirement account, you receive a steady income stream after you retire. The amount you receive from an annuity can be received monthly, quarterly, annually, or in a lump-sum payment.
Diversifying your savings is the best way to secure a comfortable retirement. It's never too early to start saving for retirement, but it's also never too late. Speak to a professional and assess your current situation if you’re still unsure about which of these options is the best for you.
As an Infinity Insurance client, you can use savings from your auto, homeowner’s or renter’s insurance to give your retirement plan a boost. Speak to one of our friendly agents by calling 1-800-INFINITY to see how much you could save on these policies or visit our website to receive a quote in minutes.