The best way to ensure a peaceful and worry-free old age is with a retirement savings plan. In this article, we explain the steps to follow to meet this goal and some tips, which will make the task easier.
This financial method makes it possible to accumulate enough money that will be needed once the worker must retire so that both he and his family can enjoy full economic stability.
Based on the above considerations, it is important to analyze the different factors that influence this activity, as well as to choose the appropriate strategies for the success of saving for retirement.
What are retirement savings and why is it important?
Savings is a financial activity, which consists of reserving an amount of money (income product) to be used in contingencies or future situations. In this sense, saving for retirement represents a very important act for people’s economy.
This is because, by saving in a systematic, planned and organized a way for the moment of retirement, it is possible to have stable financial support in cases of emergencies or unforeseen circumstances.
However, many people do not know the correct and efficient way to carry out this activity; therefore, at this stage of their lives, they depend solely on public pensions, which are subject to uncontrollable macroeconomic and socio-political variables.
Steps to start saving for retirement
Saving for retirement enables people to cope with the situations that arise when they leave their jobs and thus their regular income. Here are some simple steps to success in saving for retirement.
1. Assessing Your Current Financial Situation
First of all, it is important to know what the current financial situation is; this will answer one of the main questions: How much do I need to save?
For this, it is necessary to analyze the savings that have been made in pension accounts. These can be individual retirement accounts or structured savings plans in work environments. It should be noted that savings for vacations, car purchases, houses, etc. should be excluded from this list.
2. Knowing the sources of income and expenses
As far as savings are concerned, especially when they are earmarked for retirement, two significant factors must be analyzed in detail to achieve the expected financial success.
These factors, your sources of income and expenses; as for the former, it is important to evaluate the origin of the money to be saved, which will be mainly from the employee’s payroll; however, there may be secondary sources of income.
On the other hand, money expenditures are of paramount importance, since they determine the amount that will remain available for savings once all debts have been paid off.
In this context, for the savings plan to be successful, it is necessary to reduce debts and expenses as much as possible; for this, priorities must be established and expenditures must be made only on what is indispensable to satisfy the needs of the household.
3. Setting goals and retirement age
It should be noted that any savings plan must be subject to the achievement of the stated objectives; in this case, future retirees must know exactly which plans they wish to carry out during their retirement.
For example, if your goals are to travel the world, or, on the contrary, you want to live in a small, comfortable country house. This decision will directly influence the amount of money you will need to save.
In addition to this, it is important to consider within the savings plan, the future expenses that will be presented, such as life insurance, medical expenses, acquisition of medicines, recreational activities, among others.
On the other hand, the age at which the worker wishes to retire should also be decided in advance. This is because it is this data that will determine how long the savings should last, in addition to the estimated retirement period.
4. Consult a financial and retirement advisor
Finally, to achieve financial success in retirement, knowledge in the area of money management is necessary; however, not everyone has the experience and ease to handle this information. It is for this reason, that consulting a financial advisor can be the final point, which determines true success.
In this order of ideas, the professionals trained for this function are the financial managers, who serve not only in the area of saving for retirement but also, in the patrimonial situation in general.
As a last detail, it is advisable to hire professionals whose fees are calculated based on the administered income, and not on the products or services they offer. In this way, consulting expenses will not become a major capital flight.
5. Assets to invest in retirement
Once you know your retirement goals, estimated time, and financial situation, the next step is to select assets or retirement plans, where the money will be deposited for savings.
The most common are:
This retirement savings plan deducts a percentage of the worker’s income (before taxes) by payroll. In this way, a part of this money goes to future retirement, besides, it reduces the calculation base for the payment of taxes. On the other hand, there is the Roth 401 (k) plan that works similarly to the previous one.
However, in this case, the deduction for savings is made after taxes, so the payment of taxes will be higher. It should be noted that these plans are offered by employers to their workers, who must analyze the advantages and disadvantages of each and select the one that best suits their needs.
Individual Retirement Account (IRA):
Another interesting option for saving is individual retirement accounts or IRAs. In which people deposit a fixed portion of their income before taxes.
Although at first glance they resemble 401(k) plans, there are marked differences between the two savings assets. The first is that individual retirement accounts can be opened without employer authorization. Unlike the 401(k), which is offered only by the employer.
On the other hand, IRAs operate as tax-deferred, meaning that the money saved is tax-exempt until retirement. However, there is another type of IRA that works in reverse, called a Roth IRA, in which the money saved is not tax-deductible.
So people must pay income taxes at the time they make their savings contributions. However, when withdrawals are made, they are exempt from federal taxes and the money is given away in full.
Tips to Ensure Success in Retirement Savings
As has been noted, saving for retirement is a process that requires a little effort and, above all, dedication and perseverance, which will be well rewarded in the future. Here are some tips to ensure that saving for retirement is a success:
He makes decisions:
- While it’s true that saving early can ensure a significant advantage in the future.
- Any time is a good time to start saving, the important thing is to make the decision and implement an efficient savings plan.
- Especially when extra income is available, it’s best to save it and not spend it immediately.
Direct debit savings:
- Today’s technology allows automatic payments from online accounts, so savings deductions are made automatically and without delay.
Increase your income:
- With a higher income, you can save more, which is why it is recommended to expand the sources of income.
- To do this, it is necessary to invest in vocational training and take new risks.
- Finding financial strategies to reduce tax debt or bank products, such as credit cards, will provide a higher profit margin.
There is no doubt that retirement can generate feelings of fear and uncertainty, since leaving daily professional tasks considerably reduces household income. However, by applying these simple steps and tips, your retirement savings will be successful. Also, you can count on the support and advice of a professional, which in the long run makes all the difference.
Keep in mind that saving for retirement should be carefully considered and its effective implementation will generate great future benefits for you and your family. We hope this guide was useful for you if you have any doubt just let us know! Also, feel free to suggest further tips to make our readers’ retirement successful!