Picture source : Financial Express
Everyone should know by now that you need to prepare for retirement, especially for the employee. Most employees don’t always know how to plan for retirement and what the best retirement investment strategies might be. Whether you're a young professional starting your career or someone nearing retirement, you should start investing for retirement right away. Planning for retirement is a way to help you maintain the same quality of life in the future. You might not want to work forever, or be able to fully rely on Social Security.
Planning for retirement requires a positive mindset, and it's never too early or too late to start. The best retirement investment depends on where you are in your career and what your goals are for the future. Retirement plans often evolve over time. Here are five key steps to developing a personal retirement investment strategy:
1. Set Your Retirement Savings Goal
Buying a new car or estimating how much savings you need to pay off your home is relatively easy. On the other hand, how much you want to save for retirement is a much bigger and more difficult personal financial goal, and you may find it very difficult to get it right. There are many variables to consider. How much time off do you need? Will there be expensive medical bills? At what age will you stop working completely? How long do you actually live?
2. Open a Retirement Account
Once you figure out how much you need to save, open a retirement account. Historically, investing in the stock market has yielded much higher returns than a savings account, making it the preferred vehicle for increasing retirement savings. Not all investment accounts are ideal for retirement planning. To encourage people to save for retirement, the federal government has created a special type of investment account, commonly called a retirement account, that offers certain tax benefits.
3. Choose Your Investments
Deciding how many funds to buy and how much of your money to invest in each fund is called your asset allocation strategy. This approach evens out your risk appetite over the time to retirement and allows you to better allocate your retirement savings across different investments. If you really want a hassle-free retirement plan, consider a fixed date fund or robo-advisor. For a small fee, these premium options provide you with a pre-constructed retirement portfolio that automatically adjusts your holdings as you age and as markets change.
4. Regularly Increase Your Retirement Savings Rate
You may not be able to save 15% of your income for retirement right away, but that's okay. You can start small to take full advantage of the critical role time plays in increasing your return on investment. To help you reach your retirement goals, many financial advisors recommend increasing the amount in your retirement account by 1% each year until you reach at least 15% of your salary. You can also increase your wealth after retirement by:
Automatically save a portion of raises or bonuses
Save your windfalls
Once you pay off debt, direct those payment amounts to retirement
Avoid lifestyle inflation
5. Consider future medical costs
Consider taking out long-term care insurance to help with household expenses and other expenses to cover your retirement. If you buy insurance now, your premium will be cheaper than if you waited a few years, and you are less likely to be denied by your insurance company. If you have a health insurance plan with a high deductible and are eligible to contribute to your medical savings account, you should consider paying the maximum contribution. The funds are tax deferred, but distributions may be subject to federal income taxes if not used for eligible medical expenses. This includes additional tax on withdrawals under the age of 65. Unspent money can be saved tax-free and compounded until you need it for medical expenses in retirement.
Source : Forbes, FortuneBuilders, Benefits Pro, nerdwallet