Whether you just entered the job market or are on the verge of exit, you can still grow your nest egg. The pandemic has shown us that having money on the side is crucial since governments cannot permanently save you from financial blunders. In the end, it’s you who’s going to have to take care of yourself. When planning for retirement, the earlier you start saving, the better off you could be, thanks to the power of compound interest
In the words of Wikipedia: “Compound interest is the addition of interest to the principal sum of a loan or deposit. It also refers to the ability of your assets to generate earnings, which you can reinvest to develop your profits. Even if you began saving late at 45 or have yet to start at 25, it’s essential to know that you are not alone, and there are steps you can take to increase your retirement savings.
Consider the following seven tips, which can help you increase your savings and help you pursue your dream retirement plan.
Start Saving Today
If you’re still in your 20s, it’s better to start saving as much as you can now and let compound interest do its job.
A 25-year-old investing $75 per month, for example, accumulates more assets by age 65 than if they had started to invest $100 per month at age 35 — despite investing less each period. Hence, investing a smaller amount each month over a long duration can significantly impact investment results than putting considerable amounts of money for a shorter period.
Contribute to Your 401(K)
A 401(k) plan allows you to contribute pre-tax money, which can significantly benefit you. A 401(k) is defined as a retirement saving and investing plan that some employers offer. This plan gives you a tax break on the money you contribute. Contributions are automatically withdrawn from your paychecks and invested in available funds of your choosing.
The 401(k) plans have an annual contribution limit of $19,500 in 2021 and $20,500 for 2022 ( for those 50 or older, $26,000 in 2021 and $27,000 in 2022).
Say you belong in the 12% tax bracket and plan to contribute $150 per pay period. Since there’s no federal income tax imposed on this money yet, your take-home pay will drop by just $132. Like Medicare state and local income tax, the rest of the tariffs will apply to your paycheck. This means you can invest much more of your income without depleting your monthly budget.
Take Control of Your Spending Habits
After each month, take some time to analyze your spending habits. And if you’re a huge spender, it’s better to track your expenses per week.
What are you spending more than 50% of your money on? Is it chiefly food or are you spending more on recreation and shopping?
You can downsize on money spent on food by cooking more at home rather than ordering take-out. And if you’re not always heading out to meetings or gatherings, there’s no need to buy more clothes.
Stash Extra Funds
If you get a bonus at the end of the month, don’t just treat yourself by buying a new handbag or a brand new designer watch.
Do you need a bag or a watch right now? If the answer is no, then stash that bonus away. You never know when you might need emergency funds, so it’s best to save some of it and use the rest for your retirement plan.
Delay Social Security
Before you hit 70, you can delay receiving a social security payment every year. 62 is the earliest age you can start receiving retirement benefits. But for each year you wait until you reach 70, your monthly benefit will increase.
So retiring at 67 will get you more benefits than retiring at age 63. Hence, pushing your retirement back even a year could make a considerable difference.
Set a Financial Goal
Before dreaming about your retirement house, try to set a few goals each month.
Say you want to save $70 this month, think about what you can do to achieve this goal. After you successfully save your desired amount, your sense of achievement and confidence will increase, and soon you’ll be willing to save more by setting another milestone.
Check for Long-term Care Funds
Though elders seek retirement homes to fill their loneliness, others might want to stay at their humble abode.
For those who are planning to retire at home, long-term care funds can help them secure their retirement. In fact, in 2019, the state of Washington came up with the WA cares fund that’s an insurance benefit aimed at helping older residents.
The plan that got signed into law will use 0.58% payroll tax to pay up to $36,500 benefits for individuals to fund their home health care expenses.
The Washington state long-term care tax plan is expected to save around $3.9 billion of state Medicare costs by 2052. Beneficiaries can expect to collect funds starting 2025. Politicians and other state officials notice the dire need to care for their aging population and thus create plans to cater to elders’ care.
Disclaimer: The statements, opinions, and data contained in these publications are solely those of the individual authors and contributors and not of Credihealth and the editor(s).
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