Whether you’re already on track to retirement or have a way to go, proper financial planning can help you achieve your goals. Start by setting short-, intermediate- and long-term goals to reduce debt, save money and set yourself up for a successful retirement.
Medium-term goals include buying a home or funding children’s education. These should be tied to a timeline and prioritized from most to least important.
One of the best ways to save for retirement is through a 401(k) plan. It allows employees to contribute a percentage of their salary to an investment account and receive a tax break on their contributions.
Many employers also match employee contributions up to a specified amount. This extra money can go a long way toward making up for the cost of saving.
Before participating in your employer’s 401(k) plan, consider your financial goals and how much you can save each year. Medium-term financial goals include buying a home or funding your child’s education, while long-term goals will take years to accomplish.
For most people, funding retirement is the most crucial goal of all. This is why starting early and investing enough in a 401(k) plan is essential to maximizing your employer’s match.
Another way to diversify your 401(k) savings is by rolling it into an individual retirement arrangement (IRA), where you can choose from a much more extensive range of investments. You can also move it into an IRA annuity, which provides a fixed income stream for life.
If you’re changing jobs, it’s essential to consider whether your new company will allow a rollover of accumulated 401(k) funds. If it does, you can keep the tax benefits and consolidate your accounts at a lower interest rate than if you had to liquidate them.
The IRS offers various retirement information and services, including individual retirement accounts (IRAs). IRAs are an excellent option for people who need access to a workplace-based plan such as a 401(k) or who are maxing out their contributions in a project.
Several different types of IRA are available, including traditional and Roth IRAs. Each class offers tax benefits and the flexibility to choose how you invest your funds.
IRAs allow you to delay paying taxes on your savings until you begin to take withdrawals in retirement. You also have the option of investing in a variety of assets, such as CDs, stocks and bonds.
In addition, IRAs can be rolled over from another qualified plan, such as a 401(k) or 403(b) method. This is often done when people change jobs or move to a new state, and it can help them keep their existing retirement plans in one place.
Before you open an IRA, consider your financial goals and your motivations for saving. For example, you may be interested in retirement but want to save for a child’s education or pay down debt. Identifying your goals and motivators will help you prioritize your investments and determine how to reach them.
Deferred Compensation Program (DCP)
Deferred Compensation Program (DCP) plans allow you to save more than the annual 401(k) contribution limits through automatic payroll deductions. This can help you build a sizeable savings cushion for retirement expenses.
The DCP offers a tax-deferred way to invest your money, and you can choose your investment mix. But, as with all investments, you take a risk.
For example, your account balance may decline if the stock market decreases. Depending on your goals and situation, this can cause you to lose out on potential investment returns.
Ultimately, deciding whether to participate in a DCP plan should consider how much you want to save and how long you plan to invest it. As with any financial planning, you must consider your current and projected income tax rates and other personal assets.
If you need clarification on whether DCP makes sense for your needs, work with an experienced advisor who can assess your specific circumstances and help you decide if it’s the right solution.
Whether saving for your child’s education or purchasing a home, a DCP plan can be a valuable tool to help you achieve your financial goals. But, you must take a realistic approach and commit to your savings goal.
As you save for retirement, you’ll need various strategies to help keep your money growing. For example, you may need to protect your investment from runaway inflation. You’ll also want to be strategic about how much you withdraw from your portfolio each year.
Before you decide on a strategy:
- Consider your time horizon and tolerance for risk.
- If you have a short time horizon, invest in low-risk funds that earn steady, predictable growth.
- If you have a longer time horizon, consider a high-growth fund that can double your money in seven to 10 years.
If you need help deciding what kind of investments to use, talk with your financial advisor or an experienced broker. They can explain the different types of assets and recommend ones that will best suit your goals.
You can also set up a schedule to check your account progress and see if you’re on track to achieve your financial goals. You might review your monthly progress for short-term objectives and quarterly or annually for longer-term goals.
It’s also important to remember that the market goes up and down, so checking your progress regularly is essential to ensure your financial plan is still on track. Getting lost in the shuffle can be easy if you don’t keep tabs on your savings.Share on Facebook «||» Share on Twitter «||» Share on Reddit «||» Share on LinkedIn