Some people are happy and healthy; they love their jobs, and they arent carrying much debt.
Others of us look at our student loan balance and wonder how well ever retire.
For that, you should speak with a financial adviser.
Chris Zuppa/The Penny Hoarder.
But we can help you determine what steps to take to start your retirement planning.
It works like this:
Say your investments earn average annual returns of 5%.
Then each year, youll make 5% of what youve contributed to your fund.
But youll also earn 5% on your earnings from previous years.
In other words, your earnings earn even more money.
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
But what if your car breaks down, or you have a sudden medical bill?
Over half your money would have come from earnings.
The moral of the story?
Even if you cant contribute much, its important to start as early as possible.
Here are a few of the most common investment vehicles.
you could direct your contributions into investments like exchange-traded funds, mutual funds and index funds.
Earnings are tax-deferred, meaning you dont pay taxes until you begin taking withdrawals.
you’ve got the option to begin taking withdrawals tax-free at 59 12.
Many employers offer a matching contribution up to a certain percentage of your contribution.
If you have this option, you should contribute at least enough to receive your employer match.
Free money is free money.
These limits dont include employer contributions.
There are two main types of IRAs:traditional IRAs and Roth IRAs.
If you make above a certain amount, your IRA contributions are not deductible.)
Your accounts earnings are not taxed until you take withdrawals.
Roth IRAs:These involve contributing after-tax money.
For both traditional and Roth IRAs, the contribution limit for 2020 and 2021 is $6,000.
If youre over 50, you’re free to put in another $1,000.
Health care costs are a major expense in retirement.
One way to prepare is to open ahealth savings account, or HSA.
The family contribution limit is $7,200.
Thats a double tax break, team.
Figures like that will make many Americans spit coffee at their screens.
Most of us will not be able to reach that figure.
Considering picking up aside hustleor extra shifts, or asking for a raise at work.
Even if you dont have an HSA, youve got to plan for substantial health care costs in retirement.
If youre younger, you may think of substantial out-of-pocket health expenses as a once-in-a-blue-moon occurrence.
In retirement, theyre likely to be a monthly expense.
And the costs of long-term care can quickly add up to staggering sums.
Some years, your retirement fund may actually lose money (looking at you, 2018).
In these years, its important to remember that retirement investing is a long game.
Historically, over time, the stock market has gone up and investors make money.
Dont pull money out of your investmentsin reaction to market swings.
Thats more than enough time for the market to correct.
If youre making minimum payments on your debt, youre likely costing yourself significant money in the long run.
But even debts with lower interest rates can put a significant burden on your finances.
Consider how much more affordable your life would be without a car loan, student loan or mortgage payment.
Make extra payments to any debts youre carrying.
It takes time to build retirement savings.
And the closer to retirement you begin, the more difficult it becomes.
Dont make the mistake of putting off saving for another year.
Youll miss out on growth that puts you closer to your retirement goal.
Jake Bateman is a writer and editor in Florida.
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