One of the essentials of preparing for the future is building your retirement nest egg.
The amount of money you save now can be a big help later, when you are ready to retire. However, growing your nest egg can be a challenging task.
You might not remember to make regular contributions, and it can be difficult to put money away for retirement when you feel like you are struggling financially.
A great way to ensure that you save for retirement is to arrange for automatic contributions to your retirement account.
Setting Up Automatic Contributions
For those who are employed by someone else, setting up automatic contributions can be as simple as a trip to the human resources department. You can arrange to have retirement plan contributions to come out of your paycheck. That way, you are “paying yourself first” through your retirement contributions before the money even hits your bank account.
If you are investing in a 401(k) plan, your contribution comes out before you pay taxes, lowering your current taxable income (you will have to pay taxes later, though, when you withdraw from your account).
Additionally, you can find out if your company offers a matching contribution.
This is essentially free money from your employer that can boost the amount that goes into your portfolio. Even if your employer doesn’t offer a free match, having the money taken from your paycheck is a good way to force savings.
Increasingly, though, there are those who are self-employed.
Business owners don’t have the same access to the employer-sponsored plans. However, it is still possible to automatically set aside money for retirement.
Anyone with earned income can open an IRA or a Roth IRA and save for the future. The contribution limits for an IRA are lower than those for a 401(k), so a business owner can consider looking into the possibility of setting up a SEP IRA, SIMPLE IRA, Keogh Plan, or solo 401(k), in addition to a Traditional or Roth IRA, in order to boost retirement savings.
Automatic contributions can be made even to these plans.
Arrange a transfer of funds from your bank account each month so that your retirement contributions are set on automatic. That way, you’ll be preparing for your future — without needing to bring your focus away from growing your business.
Adjusting Your Retirement Contributions
Few of us can start out contributing the maximum allowed by our retirement plans.
However, it is possible to start small, and the work up to a larger goal.
As you earn raises or grow your business, you should be able to increase your retirement account contributions. Make it a goal to eventually max out your contributions.
And, remember that you can have different types of accounts.
It is possible to have a 401(k) and an IRA. When your yearly contributions are maxed out one type of retirement account, see if you are eligible to open another and work toward maxing out that account.
Periodically review your contributions, and your financial situation.
If you can afford to increase your retirement plan contributions, go in and adjust matters to that you are adding more to your account.
Your future self will thank you.