According to financial planning experts, it is important to start your retirement planning right from the very first day of your job. This will allow you to plan properly and save money wisely to build a huge corpus. The amount saved will prove to be more than useful after retirement, especially if you do not enjoy getting pensions. Unfortunately, a good number of people wait for a later stage of life to save money for their retirement. This is a wrong strategy. Many elderly people can be noticed being dependent on their spouse or children for survival and medicines. But life is not good for such people, especially in the last few days of life. Hence, you need to know the retirement planning strategies so that you can enjoy the last days in peace and happiness.
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Top 6 retirement planning strategies to follow
1. Open Roth IRA or an IRA
Some companies might not provide 401(k) to its employees. In such a case, you may open an IRA (Individual Retirement Account) through a brokerage firm or bank. You can enjoy tax-free growth and tax-deductible contributions. You can also develop own portfolio with mutual funds, bonds, stocks, etc. You can also opt for Roth IRA. It is a good option if you are worried about major tax hit when taking out money from your retirement plan. You can enjoy tax-free withdrawals post retirement period.
2. Maximum contribution to 401(k)
Take full advantage of employer-sponsored retirement plan. Invest to the maximum possible allowed amount. You can see tax-free growth in your retirement funds. Moreover, such accounts can be funded from your paycheck directly before taxed by the IRS. This way, you can diminish effectively your taxable income. Some companies providing 401(k)s to their employees might also offer Roth 401(k) plans. You can contribute towards these plans and enjoy tax-free withdrawals on reaching 59.5 age. But remember, your account should be opened for 5+ years.
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3. HSA (Health Savings Account)
On retirement, most expenses that you will bear are likely to be directed towards healthcare requirements. Hence, you should be adequately prepared to meet such circumstances. HAS is a better option and is quite similar to that of 401(k), when healthcare expenses is concerned. You can avail tax-deductible contributions. Moreover, earnings can grow tax-free. You are also allowed to make tax-free withdrawals, but only on eligible healthcare expenses.
4. Asset allocation & Risk tolerance
The fund type you choose for your retirement plans should better reflect your long-term risk tolerance. It should rather be based on your asset allocation.
A major fear among people these days is outliving expenses in retirement. In such a case invest in fixed annuity. Being insurance products, it offers you with lifetime income. Use retirement funds for investment purpose. You can derive monthly payments from the issuing company. Several annuity types are available in the market. Some offer immediate benefits or to defer them at a later date.
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6. Get to know about retirement fund fees
Based on the fund type invested in for your retirement, there can be charged hefty fees. For instance, every mutual fund comes with an expense ratio. Basically, it is the cost involved in investment management, thereby diminishing your returns. You can also avail low-fee options. You will get a disclosure document mailer from your employer, if provided with 401(k). It will have all the details of fees charged in the plan. Identify the least cost funds present in the plan. Make sure using extremely diversified and low-cost diversified investment options in your retirement portfolio.
The above retirement planning strategies when considered can help you enjoy your retired life.