Already have a 401(k) but looking to retire earlier?
This is where Individual Retirement Accounts (IRAs) come in. Sure, you may not be allowed to save as much, the max amount you’re allowed to save for 2019 is $6,000 till you’re 50, then it increases to $7,000.
Based off your income and some other pre-qualifications, you can choose to either start with a Roth IRA or a traditional IRA. The Roth IRA requires you to deposit after-tax money to get more benefits at retirement, whereas for the traditional IRA you get the tax deductions immediately. You can own an IRA in addition to your 401(k), with deductions dependent on various IRS rules.
Savings Plans for the Self Employed
There are 4 retirement savings options favored by the self-employed. Some are IRA-based like the Simplified Employee Pension (SEP) IRA and the Savings Incentive Match Plan for Employees (SIMPLE) IRA. These plans are funded by tax-deductible employer contributions and pre-tax employee contributions.
Other options like the Keogh Plan and Health Savings Account (HSA) are funded with pre-tax dollars and grow tax-deferred over time. Creating a retirement strategy is paramount because there is no one looking out for your retirement but you. That’s why you should be paying yourself first.
Government Assistance
It’s important to know that with every 401(k) or traditional IRA contributed dollar, the government lowers your taxable income for that year. The tax deferral is an incentive to you to save as much as you can for retirement.
Setting Up Automatic Deposits
The simplest way to avoid the pain of saving each pay period is to set up automatic savings with your bank. By getting a certain amount deducted each pay period, the money is gone before you receive your paycheck. It’s a lot easier to have the money locked away before you are able to access it than have to fight the temptations to spend it on payday.
Looking to Retire Early
If you are not able to max out your 401(k) or IRA savings every year, what you have to do is figure out how much money you will need in retirement and actively work to reach that goal.
Tax-advantaged accounts such as 401(k)s and IRAs have strict and complex rules for withdrawal before a certain age and aren’t too helpful for a person looking to early retirement. In addition to saving extra, consider a regular savings or brokerage account.
Even if you’re looking to retire at 55, you will still need to cover living expenses until you can withdraw from your 401(k) at 59½ without incurring penalty fees. Having additional savings and investments is therefore crucial for an early retirement and is a big reason why you need to save more than the recommended 10% of your income for retirement.
Starting Today
When it comes to saving for retirement, take into account the 4% rule to figure out how much you will need per year of retirement. Don’t become a retiree that struggles to get by, save more than 10% of your income today.
To get started preparing for your golden years, give us a call. The Financial Helpers are ready to assist you.
