Retirement is a prospect that can seem so far into the distant future, it can be low on an individual’s priority list. While this is understandable, it is certainly not a good idea to delay planning for retirement until you are older, as you are much less able to properly plan for this period. If you are interested in being adequately and efficiently prepared for the day when you no longer have to work, here are some essential tips and strategies to utilize from your Denver financial planner.
Sooner is Always Better
Being able to properly execute a financial roadmap that includes a healthy retirement fund requires consistent action in service of this goal. This includes the fact that saving for retirement earlier in your life will make you much more prepared for when you reach your golden years
. A person that consistently sets aside a healthy amount of money each and every year from age 25 will be much more prepared for retirement than the person that waits until they are 40.
Often, it can be easy to put off the idea of retiring until a later point in time, but a person is always better suited to reach their financial goals the sooner they start saving. While an individual may believe they will be able to make up for lost time, putting off saving for retirement will dramatically reduce a person’s ability to take advantage of compounding interest.
Assuming a rate of return of 7%, a 25 year old that saves $5,000 every year for 40 years will retire with approximately $1 million dollars. An individual that beings saving $5,000 a year when they are 35 will end up with approximately half the total amount as the 25 year old, as compounding returns will be significantly slashed. Delaying saving for the future will inevitably put a person at a severe disadvantage.
Pay Down Debt as a Priority
If you are in a large amount of debt, whether it is from credit cards, student loans, a mortgage, or otherwise, it is important to focus on paying off debt, specifically the high-interest variety. This is especially the case if this type of debt is not able to be written off as a tax deduction. If you are trying to save money but aren’t paying down debt that has high interest rates, you are losing money in the long run. While receiving interest from a savings account or other financial tool is a nice thing to take advantage of, you will be cutting yourself short if you end up paying more in interest payments.
It is a good idea to save for retirement in addition to making payments on your mortgage and other low-interest items, but you should always seek to pay off debts that are costing you more in the long run. If possible, consolidate loans and debts as a way to reduce interest payments.
Take Advantage of Tax Benefits Offered By Retirement Accounts
The government offers a number of financial planning instruments to individuals in order to make the prospect of saving and investing for one’s retirement an accessible and attractive option. A Roth IRA allows a person to contribute up to $5,500 each year tax-free each year, and this number increases to $6,500 once you reach 50 years old.
Your employer may also offer retirement plans that allow you to contribute a portion of each paycheck towards this account. Often this is in the form of a 401k, and many employers also match contributions up to a certain percentage, offering an attractive incentive for individuals looking to maximize their retirement fund. Discuss the available options with your employer and start contributing as much as possible in order to be fully prepared for your financial future.
Save in Addition to Your Retirement Fund
Saving money can be difficult, especially when the amount of bills that a person can face can seem to pile up quickly. Having a separate savings account in addition to your retirement fund is a recommended strategy to keep you on the path to financial freedom. It is highly recommended that individuals have an emergency savings fund that is separate from their retirement account in the event of unforeseen events, such as a job loss or unexpected financial burden.
It’s easy to believe that you will be disciplined with your money and be able to juggle both an emergency fund and a retirement fund within the same account, but this is a recipe for draining your retirement account once harder times hit. Having two separate savings accounts with strict spending guidelines will help a person reduce the possibility that they will spend money that is meant for a retirement.
Take Risks In The Proper Doses
A conservative retirement strategy is a safe way to plan for your retirement, but often it is possible for a person to play it safer than they need to. Of course it’s not a wise idea to take excessive amounts of risk, and you should never be more aggressive in your investment and retirement strategy than you can afford to lose. But it’s also a good idea to hedge your conservative strategy with one that has a higher potential for a bigger payoff.
Talk with your financial planner about ways to balance your conservative strategy with one that is more likely to receive larger gains. Finding the right degree of balance can be difficult, but it can be achieved with the correct combination.
If your family is in need of financial planning advice, Foxstone Financial is your trusted source for navigating this critical area of life. Whether you are in need of retirement advice, are looking to plan for your child’s future college needs, or just have questions about how you can be fully prepared in the face of uncertainty, we are your trusted financial experts. Contact us today
and allows to help you get started on the road to financial freedom.