What’s the best time to start preparing for retirement? Well, the earlier you start preparing for retirement the better, because so many things could go wrong. The stock markets could collapse, inflation could shoot up and so many things could happen to dampen sentiments.
So you should start saving as early as you can for retirement, hopefully when you are still in your early 20s. This way you will be financially independent by the time you hit your 50s, and can retire sooner, instead of waiting till you are 65 or more.
Here are tips on how to prepare for retirement.
1: Open a retirement savings account.
The most important thing to do when planning for retirement in the future is to start saving early. You can deposit small amounts of money in into an IRA plan or 401K. This is tax deductible and will earn you a decent interest till you finally decide to call it quits. Make sure to get your employer to match your contributions to 401(k), dollar for dollar. You can contribute for up to 6 percent of your salary. This way, for every $100 deposited each month into your 401(k) plan, you will get $200.
2: Open a Health Savings Account
Have you started a health savings account yet? This works in the same manner as your 401(k) plan or your IRA, but with a difference. The money invested in this account, which is tax deductible, can only be used for medical purposes. This can help you tide over a medical emergency and ensures that you have enough money left over for your retirement.
3: Invest in index funds.
You should certainly start investing in index funds, which are essentially mutual funds that do not have an overseeing management. The money is distributed into the top 50 or top 100 stocks of the S&P, Dow Jones Industrial Average and NASDAQ. The market returns provided by index funds have historically been better than even the best mutual funds managed by experts. This is certainly an option you can choose. Start investing at least $5,000 a year in index funds today, and your investment will be worth a million dollars by the time you retire. That’s quite a nest egg.
4: Focus on your long term goals.
What do you want to do when you retire? Do you want to travel the world, buy a second home, or pursue a small business opportunity? There are so many things you can do, just be motivated enough and prepare for the long haul. Set short term goals, which are achievable, and work hard to get to them.
5: Pay your taxes on time.
The most important thing you should do is to pay your taxes on time and ensure that you never get selected for an audit by the IRS. That is a hassle that you can certainly do without. File your own tax returns with hosted Tax solution.