Saving for retirement gives you freedom and control over your non-working years. Sufficient retirement savings allow for a particular level of self-sufficiency, letting you live a happy, independent life after retiring. Saving for retirement will enable you to leverage the power of compound interest, building your savings.
Whether you’re nearing retirement or a young professional starting to navigate the world of retirement planning, implementing the right strategies can be helpful. Discussed below are four ways to enhance your retirement savings.
1. Invest in a self-directed brokerage account (SDBA)
SDBA is a unique investment account in a retirement plan that lets you invest beyond the common options offered. Unlike conventional retirement plans, which restrict participants to pre-picked investment options, being an SDBA investor allows you to select from individual stocks, mutual funds, ETFs, and bonds outside the primary plan offerings, plus sophisticated investments such as REITs (real estate investment trusts). Investing in an SDBA to boost your retirement savings comes with several benefits, including:
- Increased investment options: SDBA unlocks various investment options, extending beyond the traditional limitations of employer-sponsored retirement plans. The expanded investment choices allow you to tailor your portfolio to your financial goals
- Potential for improved diversification: Diversification allows you to invest in a mix of assets, mitigating the effect of poor performance in any one investment on your overall portfolio
With pathfinder retirement or any other trusted investment platform, you can invest in SDBA and improve your retirement savings.
2. Start saving early
Starting your retirement savings journey early enough can have a significant effect on your savings over time. Since your retirement may be decades away, the money you save now will have much more time to compound and accumulate and will be worth more in retirement than what you save later on. While you might not have much to save, starting small can make an impact because your money will have more time to grow.
3. Open an IRA (individual retirement account)
An IRA is an account you set up at a financial institution to save for retirement on a tax-deferred basis or with tax-free growth. The various types of IRAs you can invest in to enhance your retirement savings include:
- Traditional IRA: With this IRA, you might qualify for a tax deduction in the year you contribute. When you withdraw the money later, you’ll pay tax on the whole amount you’re withdrawing. However, withdrawing money from a traditional IRA has some rules
- Roth IRA: It doesn’t provide an instant relief of an immediate tax break. Rather, you’ll pay taxes on your earnings now and contribute them to a Roth IRA. This means you won’t pay any taxes when you withdraw your savings during retirement. However, there are no requirements for withdrawing proceeds from a Roth IRA
4. Leverage catch-up contributions
Catch-up contributions allow those 50 and above to make extra retirement savings on a tax-advantaged basis. This increase is created for savers who might have started saving for their retirement late or were, for some reason, forced to delay their contributions. These additional savings enable them to catch up. Nevertheless, you can work on catching up even if you have fallen behind. This means you can leverage catch-up contributions to maximize your ability to save for your retirement.
Endnote
Sufficient retirement savings allow you to enjoy a happy, independent life when you’re no longer working. Investing in an SBDA, starting saving early, opening an IRA, and leveraging catch-up contributions are ways to enhance your retirement savings.
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