Planning to Meet Your Retirement Goals
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Planning to Meet Your Retirement Goals
Perhaps you’re one of the lucky few whose current retirement resources are greater than their anticipated needs. Good for you! You might consider shifting some of those resources to your current needs, or making some more adventurous investment decisions.
Things To Know
- If you think you will fall short, you could decrease your needs or increase your income.
- You can take advantage of tax-deferred retirement programs.
- Compounding can help make your investments grow as well.
Your options
For the rest of us, the task will be planning to make up the shortfall between what we’ll have and what we’ll need. You might start by deciding to decrease your needs: retire later, live on less, or do without the block-long Winnebago.
Or you might decide to act now to increase your income when you retire. Establish a personal budget that lets you set aside some money from your current expenses and invest it in your future. There are lots of good reasons for doing so.
Tax savings
The government has established a number of tax advantages that help you to save and invest for your retirement. The tax-deferred savings program, such as a 401(k) plan or 403(b) plan, that your employer may offer is an example: you can invest your contributions in a variety of investment choices, and both your contributions and the earnings on your investments are tax-deferred until you take them out. IRAs and tax-deferred annuities are other examples of retirement investments that reduce the tax bite.
The power of compounding
When you invest into an account with compounding (fixed or variable) interest, your money earns money, and then that money earns money, and then—well, you get the idea. As an example, $1,000 invested at a relatively modest 5 percent interest rate will grow to a value of over $7,000 in 40 years (compounded annually, before taxes). The sooner you start building for retirement, the less you should have to take out of your current spending, and the more you will theoretically have to live on later.
Generally, the sooner you put your retirement plan in place, the more likely it will be that your retirement will be all that you want it to be, and the less likely that economic worries will take some of the gleam off your golden years.