Rev up your retirement savings, 3 proven ways
The 3 steps:
- Workplace Savings Plan
- Automate Contributions
People around the world keep living longer and longer. People in Europe and America are expected to live on average, until age 85. And an average 65-year-old woman will live to 88. One of four retirees will make it past 90 years old, and 1 of 10 will reach 95.
A longer life expectancy might seem good at first glance, but it presents a lot of challenges for retirees. Long life means that you will have to save enough money, over your career that you can cover you retirement expenses for 20 years or even more, depending on location and how long you live.
Fortunately, there are a lot of, little known in Europe, opportunities that will help you save up to your retirement goals. If your employer offers workplace savings plan, this is the best place to begin. However not many people are aware that they can have an workplace savings plan (WSP) and an IRA at the same time. North Quest Investments London, can provide you with a free consultation on where to start your saving journey for free.
The WSP and IRA, one-two combo will allow you to save-up enough money for retirement. This plus the added benefits of an automatic investment plan, and you may be on the way to a well planned retirement.
Here is more information about our 3 Proven Ways to rev up your retirement plan
- First comes WSP (Workplace Savings Plan)
If your employer gives you the opportunity to do a 401(k), 403(b) or 457 plan, contribute the maximum amount that you can afford. If they don’t offer this, contract North Quest Investments London, Retirement Department for other alternatives. The current annual limit is 18 500 USD (plus an additional 6 000 USD for anyone older than 50). In some counties such contributions enjoy tax waver, until you start collecting distributions.
- If you are contributing the maximum amount to your workplace savings plan, you may also want to consider establishing an IRA to supplement your retirement savings. Contrary to what many people assume, there is no rule against saving in both a workplace savings plan and an IRA.
Assuming you have earned income, you can contribute up to $5,500 (plus an additional $1,000 catch-up contribution for anyone who is age 50 or over). If you are 50 or older, or will turn 50 before year-end, you can make an additional catch-up contribution.
There are 2 types of IRAs, Traditional IRAs and Roth IRAs. (Note that there is also a Rollover IRA, which is simply a Traditional IRA often used for rollovers from an old workplace plan, such as a 401(k).) Contributions to a Traditional IRA are made with after-tax dollars and may be tax deductible if your income limit allows. These contributions grow tax deferred and anyone with earned income (as well as their spouse) can contribute to a Traditional IRA.2 Contributions may be tax deductible, depending on your annual income and whether you already participate in a workplace savings plan.
When you reach age 70½, you will need to begin taking required minimum distributions (RMDs) from a Traditional IRA each year. The amount of your RMD is based on your life expectancy and the prior year’s account balance. You will have to pay federal income taxes on those distributions, unless you’ve made after-tax (i.e., nondeductible) contributions to your Traditional IRA. Use IRS Form 8606 to keep track of any non-deductible contributions each year. With a Roth IRA, there are no required minimum distributions, which means your investments can grow tax free for as long as you like. If you do decide to take distributions, you will not have to pay any federal income taxes on that income. With a Roth IRA, you can also take distributions on the amount you contributed (but not earnings) before age 59½ with no penalty, as long as the 5-year holding period is satisfied. Additional exceptions to the rules that govern early withdrawals include death, disability, or distributions for a qualified first-time home purchase.
Married couples have an additional opportunity to supplement their retirement savings by contributing to a Spousal IRA (Traditional or Roth). This allows spouses who do not work outside the home to also save in an IRA, subject to the same contribution limits.
- Set up an automatic investment plan
Even if you can comfortably afford to contribute to an IRA, you may not relish the idea of writing a large check each year before the annual tax-filing deadline. As an alternative, you may want to consider establishing automatic monthly or quarterly contributions.
You can have funds transferred on a regular schedule from virtually any checking, savings, or brokerage account. While it’s generally a good idea to contribute the maximum amount possible to your IRA, any amount invested will help supplement your retirement savings. If you cannot commit to contributing the maximum monthly or quarterly amount, start with a lower contribution and gradually increase that amount until you reach the annual contribution limit.
An automatic contribution also helps ensure your savings will have more time to potentially grow. For example, if you begin contributing $400 a month to an IRA in May of each year and contribute that same amount for the next 11 months, your contributions will begin to compound earlier than those made right at the tax filing deadline.4
By investing a regular amount each month or quarter, you will also be taking advantage of an investment strategy known as dollar cost averaging. This allows you to spread your purchases over time and lessens the risk of investing a large amount in a single investment at the wrong time. You will buy more shares of an investment when its price is down and fewer shares when the price is up. While there is no guarantee that you will have a gain when you sell, dollar cost averaging may help reduce investment risk and build investing discipline.