Planning for retirement is essential, but 33% of people in the United States have saved $5,000 or less for retirement. That's not enough to cover 6 months of rent or a mortgage. People think that they’ll be able to work into their elder years, and while some people may be able to work until their last days, it doesn’t sound like much of a life goal.
You should start planning for retirement now.
Experts will suggest starting in your 20s, but if you’re older, it’s still not too late to save for retirement. The truth is that a lot of people in their 20s are still financially irresponsible and are trying to save money for a down payment on a home.
Planning for your retirement can be done in a few ways, depending on your lifestyle:
1. Start with Retirement Plans from Your Employer
Ask your employer about the retirement plans that are offered. You may be able to invest in a 401(k) or IRA, and your employer may also contribute to these accounts. Choosing employers that will match your contributions is ideal, as this will means extra money in your retirement account.
You'll want to maximize these plans so that your employer has contributed the maximum amount to your retirement per year.
Matching is often capped to a certain percentage of your total compensation. This may be a match up to $5,000, so keep this in mind when maxing out your 401(k).
If you’re over 50, you’ll be able to add an additional catch-up contribution of $6,000 per year.
You want to consider all tax-free options for retirement, and this will include: Roth IRA, 401(k), cash value life insurance and municipal bonds. The investment is allowed to grow tax-deferred with these options.
2. Stocks and Riskier Investment Options
If you’re in your 20s, 30s or 40s, you have time to invest in long-term investments. Stocks are a long-term investment, and to see the real benefit in stocks, you need to hold them through the highs and lows.
Warren Buffett recommends investing in stock indexes, which have a 7.1% return annually if investing in the Vanguard 500 Index Fund Admiral Shares.
Riskier investments, which are short-term, are to be avoided, especially if you’re closer to retirement. These investments include volatile investment vehicles.
3. Real Estate as an Income-Producing Asset
Real estate is a great option for investors, and it can come in many different options. You may choose to invest in properties that you want to flip, or you may want to invest in real estate to rent out.
Flipping comes with its own set of risks, and you may not want to consider this unless you have a contractor background because you won’t have the experience to know what may be wrong with the home you want to buy.
But if you buy a property with the intent of renting it out, you’ll be able to supplement your income.
For example, you’ll be able to purchase a home for $200,000 that rents for $1,400 a month. This is a significant income for a retiree, especially if you have three properties that are rented out. But you will need to also consider the costs of managing the property and repairs. In either case, real estate can be a great option because it allows you to invest in an asset that produces monthly income for you as the owner.
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