Retirement can be a time of great relaxation, discovery and personal achievement. There is one catch, however. If you are short on savings, retirement can be a stressful and frustrating time full of pressure and disappointment. That’s why it’s best to start planning early and preparing financially. Here are some tips on how to save for retirement.
Take The Retirement Savings Tax Credit
The retirement savings tax credit is well worth investigating for those who want to maximize their retirement savings. For earners who are in the middle or lower-income tax bracket this is an excellent option as it will apply to anyone with a gross income less than $65,000 for married filing jointly, $48,750 for head of household or $32,500 for individual filers. This can payoff quite considerably, offering a tax credit of up to $2,000 for married filing jointly and $1,000 for an individual.¹
Invest In Your Future
It is wise to invest at least one eighth of your income assuming you are free of debt and have money set aside for emergencies. This nest egg can keep growing and become a major asset once you retire. Websites such as bogleheads.org and investopedia.com can help to provide an investing education and community if you are new or unfamiliar. If you do not have the time or interest to do things on your own, consider hiring an investment advisor. Just make sure to research them as carefully as possible to make sure you find one that has their interests aligned with your own along with fees that are not excessive.
If you are married filing jointly with less than $206,000 in income or a single person with $139,000 or less then you could qualify for the Roth Individual Retirement Account (IRA). In addition to putting money into a regular IRA, the Roth IRA grows and can be withdrawn tax-free at retirement age, so it provides enormous additional benefits that a regular IRA does not.¹
Pick A Retirement-Friendly State
Where you retire can end up being important for more than just the scenery, housing prices and activities. Various states are more friendly to seniors and retirees. Although the majority of states do not apply tax to your social security, some do and others have state income taxes that will start to put a heavy burden on your retirement. Instead, consider a state like Florida, Tennessee, Texas or Washington where there are no state income taxes.²
Profit From Aging
Even though aging isn’t always pleasant, it is nice to at least know you can financially benefit from it. The US tax code allows various advantages if you are 50-years-old or more, including allowing bigger input to your IRAs—currently allowing a $7,000 contribution which is a raise from previous years. In addition, if you sign on to an employer-sponsored retirement plan like a 401k or a 403b you can enjoy even more tax and income bonuses.³
The HSA Is A Must-Have
Because of the rising expenses that come from today’s healthcare system and the many health plans that charge ridiculously steep deductibles, getting a Health Savings Account (HSA) is a must-do. It pays healthcare but also allows you to save up for retirement. Essentially how it works is that fully-tax deductible contributions are made and anything you don’t use for healthcare needs gets saved and interest gets added over the years. Also, once you are over 55 you can put in an extra $1,000 per annum and after 65 anything in the account can be used for a much wider range of purchases and expenses not just healthcare, turning it into basically a multi-purpose savings account.⁴