If you want to crush your retirement goals, it's important to plan ahead. There's no substitute for planning, taking action, and making strategic moves. The moves you make now could leave you with a nest without a nest egg or -- on the flip side -- have you feeling like you're on top of the world.
Here are a few tips to help you slam-dunk your retirement goals and live your best life later.
1. Determine your retirement goals
It's easy to follow the leader and download a master retirement plan that everyone else uses. But there's nothing like a customized approach to retirement that takes into consideration your unique goals and financial situation.
If you want to maximize your retirement experience, you should start asking yourself the following questions:
- What type of life do you want to live during retirement?
- Where do you want to live?
- How much income will you need to fund your lifestyle?
- When do you plan to retire?
Don't skip these questions. Your answers will determine the moves you need to make now to reach your goals.
2. Find out more about employer-sponsored plans
Don't sleep on your ability to build your retirement portfolio at work. An employer-sponsored retirement plan can help you build a seven-figure retirement portfolio. This isn't a far-fetched idea: Fidelity reported an increase in 401(k) millionaires in 2021.
Check with your employer to see if it offers tax-advantaged accounts, like a 401(k), 403(b), or Thrift Savings Plan (TSP). By setting money aside in these accounts, you can reduce your current-year tax bill while beefing up your retirement savings. You might also have the option of a Roth-based employer plan like a Roth 401(k). This account allows you to pay your tax tab up front; you'll be able to withdraw every penny during retirement without worrying about taxes. Your employer may also throw in a matching contribution to help you gain access to free money at work.
If you want to convert your workplace plan to an IRA (individual retirement account) later, you'll have more money to transfer into those accounts. A conversion can give you more flexibility and control over your money.
3. Look into IRAs
Don't limit your retirement planning to what's offered at work. You can get extra credit toward your retirement goals by opening a traditional or Roth IRA. For 2022, you can contribute up to $6,000 if you are under 50. You can add another $1,000 if you are 50 or over. You need earned income to contribute to the accounts.
The type of IRA you choose will depend on when you want to pay taxes. You can get an up-front tax deduction and pay taxes later with a traditional IRA. But if you want to get your tax bill out of the way now and earn tax-free income during retirement, a Roth IRA can be your best friend on your journey. You just have to make sure you qualify to make direct contributions.
4. Spruce up your retirement portfolio as a self-employed individual
If you're an entrepreneur or freelancer, you can gain tax advantages by saving for retirement in accounts like a solo 401(k) or SEP IRA. You might also unlock higher contribution limits that can speed up your retirement savings. Pay attention to the rules and select the accounts that are best for you.
5. Build a healthy emergency fund
Don't underestimate the power of a strong emergency fund. Having cash that you can easily access will reduce the chances of needing to tap into your retirement accounts too soon. Here's how to get started:
- Calculate how much money you need to live comfortably for six to 12 months. That can be your target emergency-fund number.
- Increase your income or decrease your expenses to allocate more toward your emergency fund.
- If your expenses don't make sense, consider downsizing your housing arrangements or moving to a new location to reduce your cost of living. This will allow you to free up more cash.
6. Consider an extra stream of income
One of the biggest fears retirees have is outliving their savings. Having an extra stream of income automatically flowing into your account every month will reduce the chances of you emptying out your savings account.
One of the easiest ways to put your money on autopilot is by building a dividend income portfolio. Calculate how much money you want to supplement your retirement income, and start adding assets to your account to build your dividend machine.
If you start making these moves now, your future self will thank you. There's nothing like reaching retirement age and knowing that you can confidently live the life you've dreamed of because you positioned yourself for success.