Hello, #DOCTORpreneurs. When it comes to retirement, the earlier you plan and save, the better. Because of compound interest and tax deferrals, you can benefit more the earlier you start saving for retirement.
Do you know how much you need to save for retirement? How can you maximize your savings?
These strategies will help:
1. Think about the kind of retirement you want. Will you want to live differently when you retire? Start visualizing the type of lifestyle you want to live when you retire so you can tailor your savings goals to that lifestyle!
- How old do you want to be when you retire?
- Will you still work part-time?
- Where will you live? Do you want to live domestically or internationally?
- Will you be renting a house, or will you own your house?
- What will your monthly costs be?
2. Start saving today. Most (if not all) articles you read about retirement will encourage you to start saving today. The reason being is over time you can earn money from your savings via compound interest, the interest you earn on interest. It comes from reinvesting the interest you earn. It works in your favor.
- Hypothetical examples suggest that even a 25-year-old who invests $75 per month would accumulate more assets by 65 years old compared to a 35-year-old who invests $100 per month.
- Put as much as you can away now so that you can reap the rewards later.
- Some financial experts recommend saving 15% of your pre-tax income towards tax-advantaged accounts
3. Set a goal. Take time to carefully consider retirement expenses while factoring in inflation. Will you have other expenses that you might not have right now (such as children’s expenses)?
- How much do you want to have when you retire?
- Will you be traveling when you retire?
4. Automate your savings to a retirement plan. Take advantage of tax deferrals to a retirement account. Set up automatic payments to your Individual Retirement Account (IRA) or 401(k). This way, the money gets deposited into your retirement savings plan before you have to think about it.
- 401(k)s have a high contribution limit ($19,500 if under age 50), and sometimes employers are willing to match your contributions. If you are employed, check with your employer to see if they match what you put in.
- If you are under 50, you can contribute up to $6,000 to an IRA. If you are 50 or older, you can contribute up to $7,000 to an IRA.
- Money contributed to a Traditional IRA may be deductible on your taxes that year. Then, when you withdraw money from that account in retirement, you pay taxes then.
- Money contributed to Roth IRAs is not deductible from your taxes that year. However, withdrawals you make from that account when in retirement are not taxed.
5. Diversify your savings. Don’t put all your eggs in one basket! Your IRA is just one piece of the puzzle. Consider investing in other assets, such as property, mutual funds, or bonds.
6. Take advantage of employer matching. If your employer matches your IRA investments, take advantage of that! Deposit the maximum amount that your employer matches.
7. Continually reduce your debt. Pay off your credit cards every month or pay as much as possible towards your credit card debt. When possible, accelerate your mortgage payments. As a rule of thumb, reduce your existing debt and avoid accumulating new debt.
Saving for your ideal lifestyle when you retire is a marathon, not a sprint. When you build your wealth over time, you don’t have to worry about tackling everything all at once.
Remember that over time, your retirement account will build! Try to save at least 10-15% of your pretax income to start. You’re already ahead of the game by thinking about this now!
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