Never Too Late – Catching Up on Retirement Contributions
The two of you are looking at your retirement accounts and you’re not happy with their current balance. One reason may be that you haven’t really focused on investing. Perhaps you’ve had to deal with paying off debts first or maybe you had to take care of other family obligations – whatever the case, you realize you’re behind where you need to be on your retirement goals.
While it’s never too late to start, you will have to adjust your finances now to avoid troubles later with retirement. The good news is that it can be easy to set up and follow through.
Take 20% Off the Top
When setting aside a goal for investing, try to shoot for at least 20% of your income. If you can’t start off with 20%, then start somewhere and increase your contributions annually (see below for a painless money tips).
Grow Your Contributions Faster with 401(k)s
Employer sponsored plans like 401(k) can be a fantastic tool for building your retirement plans. One benefit of saving in a 401(k) is that your contributions are tax deferred. That means that you lower your taxable income now while investments grow for retirement later.
Another huge benefit of some 401(k) plans is the employer match. Some employers will match a percentage of your retirement contributions – effectively adding free money into your account. That can help you as the money grows along with your contributions, speeding up the progress that you make.
One downside with 401(k)s is that your investment options can be limited. Check to see the fees involved with the investments (lower is better- so your money is growing, not paying managers). You may want to see if you can get low cost index funds as a part of your portfolio.
Painless money option: Commit a portion of every raise you two towards retirement contributions. You want to make it easy for you to make your goals – saving as soon as you get a raise means you won’t notice it in your budget. It’s a win-win situation.
Maximize Your IRA Investments
If you need another option for investing for your retirement, then you should check out contributing to an IRA. Whether you choose a Roth or a traditional IRA, there are some great ways you can use it.
Right now you can contribute up to $5,000 into one each year (starting 2013, you can contribute $5,500). If you’re 50 or over you can contribute and addition $1,000 which brings your total to $6,000 ($6,500 in 2013).
Don’t forget that these are for individuals, so a couple can contribute $10,000 into IRAs (between them) for 2012 and $11,000 for 2013.
Once again looking for low cost index funds can be beneficial for your portfolio. According to MorningStar, the low cost funds have another advantage: