Retiring without a well-thought-out plan can result in frustrations later in life, particularly when you start to run into financial difficulties. That is why it is often advisable to plan for retirement while still active in employment. It is however not something easy to do, but in this article, we give you a simple guide on how to go about planning for retirement.
Knowing how much you need to save is an important element when planning on how much money you will need after retirement. Not many other issues would matter unless you have given this one a deep thought. How much you save will depend on some factors, including your current earnings, your projected future expenses and any other benefits you are likely to enjoy in future. Based on these factors, you may run into difficulties planning. However, if for instance, you are unable to match the savings that can take care of your projected expenses, you can gradually increase the amount that you save periodically to meet your intended goal.
After planning how much you need to save, the next most important consideration is where to put the money. Everyone saves with the aim of making returns, but not every retirement savings plan offers the same benefits. For instance, one can choose to contribute to Roth IRA or 401(k), both of which have different limitations. Even though savers can choose both, most tend to go for one. Primarily, and what tends to be an advantage of saving through 401(k) is the fact that limits are higher, compared to Roth IRA whose limits are significantly lower. If you have determined your savings to be relatively higher, then you can easily choose 401(k). Tax benefits accrued for the chosen savings option is also a major consideration. For instance, it is advisable to go for plans that have an upfront tax plan like HSA, whose contributions can also be used for health care expenses tax-free as well. The same program also allows those above 65 years to utilize the savings without incurring any penalties.
It is also important to gauge if you will be allowed to withdraw your money prematurely, and the penalty likely to be incurred. Some saving plans will demand exaggerated penalties if you take your cash out before maturity, and that should inform your decision regarding the firm or plan you choose to save with. Either way, a critical consideration is the limits and the overall cost of the plan. However, irrespective of the retirement plan you choose, it is important to start doing it early on to maximize the benefits, including saving as much as possible.