WorldExecutivesDigest.com | How to Build Towards Retirement | No matter how young or old you are, it’s never too early to start planning for retirement. The day you get to hang your hat and exit the workforce may seem like a lifetime away, but it’ll be knocking on your door before you know it. It’s imperative that you’re prepared—unfortunately, most people are not.
New findings show that 64% of Americans will retire broke, expecting less than $10,000 in their retirement savings account. Too many people fall under the impression that the government will take care of them once they stop working and that Social Security benefits will be enough to replace the income they once earned in wages. This couldn’t be further from the truth; now more than ever, retirement is built on personal savings and it’s up to the individual to get there.
You don’t want to be out of work, struggling to manage your retirement debt or unable to afford critical medical expenses. These are supposed to be your golden years filled with travel and leisure, not financial stress and anxiety. Take our advice and follow these steps to start building the retirement of your dreams now before it’s too late.
Open a Retirement Savings Account
The first step is to separate your retirement savings from your personal savings account. Otherwise, you may inadvertently spend money in the present that’s meant for the long run. You’ll feel accomplished as you watch the account grow and will reap the benefits of compounding interest over time.
There are several different types of accounts you can choose from. If your employer offers matched contributions, it’s wise to opt into their plan and automatically direct a portion of your paycheck into the account. Your savings will grow faster, and you’ll be less tempted to spend the money if you never take it home.
Otherwise, you BDO now offers PERA as a voluntary retirement plan that you can enroll in. Participants in the program receive many benefits including:
- Earned income is tax exempt
- Annual contributions are eligible for a 5% tax credit
- Withdrawals are not subject to income tax (once you reach age 55 and have held the account for five years)
Understand Your Timeline
The strategy you use to build your retirement savings will heavily rely on how much time is on your side. Those who are early in their careers will have more time to withstand market volatility, as their account can bounce back should an asset within their portfolio take a hit. Those who are in a later chapter in life, closer to retirement, should take a more conservative approach and instead focus on the preservation of capital.
Assess your risk level and reevaluate it over time. Otherwise, your returns may be less than 3% and the account won’t be able to sustain itself over the course of a 20+ year retirement. You need to be cautious and take steps to prevent your money from drying out too soon. Should that happen, you may be able to use a reverse mortgage calculator to see the amount of equity you can inject into your portfolio, but it’s always better to store the wealth you’ve accumulated in your home since it’s a tangible asset.
Choose Your Assets
When you’re ready to start investing for retirement, you’ll need to choose which assets to add to your portfolio. A few different options you can select from include stocks, bonds, exchange-traded funds (ETFs), and real estate investment trusts (REITs). The golden rule is all about diversification; your portfolio should contain a mix of several different types of assets to avoid placing “all of your eggs in one basket”.
For example, if the real estate market takes a hit, you can lean on the booming stock market to cushion your fall. Or, if the value of your shares plummet, you can ride it out knowing that your stable bonds will weather the storm.
Unless you plan on hiring a financial advisor to make trades on your behalf, you’ll need to learn how to access the stock exchange market. There are many platforms you can use to invest without commission. Some are more user-friendly than others, so make your decision based on your experience level.
It may seem like no big deal to stow away a few dollars here and there, but when you watch your money grow and work harder for you, you’ll ask yourself why you haven’t started sooner.