When your parents or grandparents tell you to save money for your retirement, they mean that you should put some of your paychecks into a savings account. This is a good start, but traditional savings accounts are not the only way to save for retirement.
The pros of saving money for your retirement are numerous. Not only will it make your golden years more comfortable, but it will make you financially secure in the short term, too. With a sufficient retirement fund, you can avoid tapping into your retirement savings to pay for everyday necessities. When you don’t have to dip into your retirement savings, you keep more of your money, which can build a better nest egg for the future.
Relying on social security Benefits
Social security is the main source of income for many seniors. Although it is common knowledge that it is not a pension and an insurance plan, many people rely on their social security benefits to fund their retirement needs. With healthcare costs rising and wages decreasing, it can be easy to be lured by the idea of free money. However, this is a risky practice that can end up leaving you without a source of income in your golden years.
When you are in your retirement years, you need to know that your retirement finances are secure and that your investments will provide you a steady stream of income for the rest of your life. This seems like a simple enough idea, but the reality is that you must work with a team of professionals who have the right knowledge and experience to help you make sure that your future is secure.
Staying with your children
What happens if you need long-term care? Can you get it? Who pays for it? And, most importantly, who will provide it? The reality is that millions of Americans face the very real possibility of needing long-term care. According to the U.S. Department of Health and Human Services, nearly 70% of adults age 65 and over will require some form of long-term care. Given the high costs of this care (nursing homes can cost upwards of $80,000 a year), you don’t want to be a burden on your children.
Supporting an adult child can be a great thing, and it can also be a huge burden. Giving your child a helping hand by giving them money towards their mortgage or paying for their car insurance is one way to show how much you care about them. However, it can also put you in a sticky situation, and this can be disastrous if your child is irresponsible with their money. Don’t be afraid to offer financial assistance to your loved ones when it is needed, but don’t give them more than they can handle.
Saving for your Tax-Deferred Retirement Account
Tax-deferred retirement accounts, including traditional individual retirement accounts (IRAs), Roth IRAs, and 401(k) plans, offer a way to save for future retirement and reduce your taxes at the same time. According to the U.S. Securities and Exchange Commission, IRAs are retirement savings plans that give you tax advantages and other benefits when you save for retirement. You can contribute up to $6,500 to an IRA in 2018 ($7,000 if you’re age 50 or older). IRAs are available at banks, credit unions, and some brokerage firms. Some employers also offer IRAs as a retirement savings option.
The reality is that most people don’t have a clue about what they will do when they retire. The majority of people have no plan for their retirement and live the golden years on a wing and a prayer, hoping that things will work out. The idea of retiring at 60 or 65 and watching the grandkids grow up while fishing and playing golf may sound ideal, but how can you be sure that you will be able to enjoy this lifestyle for a long period?
Compound interest is like free money: you invest $1000 and, after 5 years, it has grown to $10,000. However, during those five years, you only invested $1000. You never earned money on it. This is because compound interest is the effect of interest-earning interest. Compound interest is exponential growth (i.e., your balance grows faster and faster as you earn interest on your interest). The actual amount you earn each year on your investment is drastically more than you would earn in interest was earned only once when you made your initial deposit. As a result, your investment’s actual amount is much more than the initial investment’s face value when you compound interest over time.