The truth in retirement planning is that, due to the power of compound interest, the earlier you start saving, the better off you may be. However, it’s essential to know that you’re not alone and that there are actions you can take to grow your retirement savings and make the most of your retirement, even if you started saving late or have yet to do so.
Hence, this article will provide you ways you can stretch and make good use of your retirement money.
Ways To Stretch Your Retirement Money
Focus on starting today
Start saving money as much as you can now, especially if you’re starting to put money aside for retirement, and provide compound interest—the capacity of your assets to produce profits that are then reinvested to produce their earnings—a chance to work in your favor.
Contribute to your 401(k) account
If you are qualified and your employer offers a standard 401(k) plan, you can make pre-tax contributions, which is a big benefit. Let’s say you want to put $100 down each pay period and are in the 12% tax bracket. Your take-home pay will decrease by only $88 because that money comes from your paycheck before federal income taxes are deducted. This means that you can increase your investment without having a significant impact on your monthly budget.
Take advantage of catch-up contributions if you’re aged 50 or older.
Because yearly contributions to IRAs and 401(k) plans are capped, it’s crucial to start saving as early as possible. The positive news: You are qualified to contribute more to your IRA and 401(k) than the standard limitations as of the calendar year you turn 50. Therefore, catch-up contributions may help you increase your retirement savings if you have yet to be able to save as much as you would have liked over the years.
Automate your savings
Make your monthly retirement payments automated, and you’ll have the chance to expand your nest egg without worrying about it—you’ve probably heard the saying “pay yourself first.”
Save extra funds
Don’t just throw money away. Increase your donation percentage each time you get paid more. At least 50 percent of the additional funds should go into your retirement plan account. Additionally, resist the impulse to treat your tax refund or salary bonus like free money by spending it on a vacation or a new designer handbag. Experts advise that you reward yourself with a small purchase and utilize the remainder to assist you in taking more significant steps toward your retirement goal.
Control your spending
Check your spending plan. Find out where your money is going so you may cut back and have more money to save or invest.
Take advantage of discounts for older adults
Discounts for seniors are a great way to increase your savings. Many companies provide senior citizens with special discounts, including retail discounts, food and restaurant savings, hotel and rental car price breaks, and retail discounts.
Read Also: How To Budget: A Complete Guide For Seniors
Things Not To Do With Your Retirement Money
To stretch your retirement money, you need more than budgeting and saving. It is also important to avoid using it in the wrong manner or unnecessary expenses.
To help you, here are the things that you should avoid doing with your retirement money:
Failing to take full advantage of retirement saving plans
You have an additional incentive if your employer matches your contributions up to a specific percentage of your salary into your company’s 401(k) or other qualified employer-sponsored retirement plans (QRP), such as the 403(b) and federal 457(b). You’re passing on money if you don’t contribute enough to receive the full corporate match. Consider increasing your QRP contribution if you receive a raise.
Getting out of the market after a downturn
You can sell out all the stocks in your retirement portfolio if the market takes a significant knock. If you do, you’ll lose out on the profits if the market recovers. Stocks, bonds, and cash should all be kept in your portfolio in a reasonable balance. And to keep your asset allocation on track, you should rebalance once a year.
Buying too much of your company’s stock
If investing in your employer’s stock shares through your 401(k) is an option, you should cap your allocation to a maximum of 10%. You aren’t being disloyal since even the most powerful corporations can fail. Because your compensation is based on the success of your business, you want to avoid a substantial portion of your retirement savings being subject to the same risks.
Borrowing from your QRP
You can borrow money from your account with many QRPs. Try to do this only if you truly need the cash for an immediate need. Because you lose the chance for investment growth when you take out a loan, borrowing can be expensive and result in lower retirement savings.
You’ll need to pay back the money immediately, usually by the deadline for filing your taxes if you quit your job or get a new one. The remaining loan sum, however, is often subject to income tax and conceivably an additional 10% IRS tax for early or pre-59 1/2 withdrawals if it is not repaid.
Underestimating the cost and length of retirement
One of the mistakes that seniors make when financial planning is underestimating the expenses associated with retirement, thinking that they may need less as they grow old. Another mistake is underestimating how long they’ll still live as they age. Hence, some crucial factors that should be taken into account are longevity, inflation taxes, and healthcare expenses.
Read also: Financial Tips From Experts For Seniors
Bottomline
Although many people wish to spend their golden years by using their hard-earned savings to travel or do things on their bucket lists, it’s still important to be cautious and smart with how you’ll spend your retirement money.
To make the most of your retirement savings, consider your retirement as a whole. Building retirement money is more likely the sooner you start and the more consistently you plan.
Our Guide To Finance In Seniors can also help you navigate through other important financial aspects of retirement, including what documents to prepare or where to find aid to help you with retirement expenses.