Being financial stable when retiring is the most important thing to do on time.
Below are 8 Alternative Ways to Save for Retirement and it actually works.
Most people know they should be saving more money, both to prepare for retirement and to just have more money in their bank accounts in the future.
However, it can be difficult to come up with good ideas on how to save especially if you’re already maxing out your tax-advantaged accounts like your 401(k) and IRA.
If you’re looking for alternative ways to save for retirement, these eight options can help you get started on the right track.
1. Get an employer match – Save for retirement
If your employer offers a 401(k), contribute at least enough to get any matching funds. For example, if your company matches 50% of contributions up to 6% of pay, you should kick in at least 3%.
That will save you money the 6% match is basically free money and lower your taxable income. It’s free money! That’s a no-brainer, right? Just make sure you don’t pull that money out before retirement.
While you might be tempted to take an early withdrawal from your 401(k), those monies are taxed as ordinary income and could put a major dent in both how much of your nest egg remains and how big it ultimately grows.
You’ll want to leave that money alone until retirement. Otherwise, you may have to live on cat food after you retire.
There are plenty of other good reasons not to touch your 401(k). So follow our advice: Leave it alone until retirement and then do whatever you want with it.
Ok maybe not cat food, but we’re pretty sure there’s a bad joke about that somewhere… maybe we’ll dig it up later.
2. Start small
An individual retirement account is a good place to start for beginners. It’s flexible, it allows you to contribute up to $5,500 a year ($6,500 if you’re 50 or older), and it offers tax advantages.
However, an IRA doesn’t let you pick your investments; they’re largely determined by whatever options your bank or brokerage offers. A better option for those who have time and money on their side?
Start a Roth IRA with a provider like Charles Schwab, which gives you access to thousands of mutual funds and no minimum investment requirements. You can even open one online in minutes.
The key to making a Roth work for you: Time. The longer your money stays in there, earning interest and growing tax-free, the more likely it is that you’ll be able to retire comfortably or at least sleep well at night knowing that you did everything possible to make sure that happens.
say you started saving for retirement when you were 25 years old and put away $200 per month.
If your money grew at 8% annually over 40 years, and you never made another contribution after age 35, then when you retired at 65, your nest egg would be worth just over $900,000! Not bad for starting small.
But imagine if instead of contributing just $200 per month from age 25 to 35 and then stopping completely until age 65 which is what most people do you continued contributing that same amount every month throughout those 20 years.
3. Contribute pre-tax dollars
You may have a 401(k) or 403 (b), or another pre-tax plan at work. If you do, contribute enough to take advantage of all of your company’s matching contributions and any free money they give you.
You’ll get an immediate return on your investment, plus some nice tax benefits as well.
If your employer matches 50% of what you contribute up to 6% of your salary, then you’re actually saving 12% of your income the 6% from their match plus another 6% from not having paid taxes on it.
It’s one of those win-win situations that makes saving money so powerful over time!
Remember, too, that once you’re contributing to your 401(k), there are many other things you can do with those funds: roll them into an IRA; withdraw them early without penalty in certain circumstances, or use them to buy a house.
This is why most financial advisors recommend putting anything beyond 10% of your paycheck into retirement savings first.
After that? Go wild! As far as we’re concerned, your retirement fund should be used for whatever purpose gives you maximum happiness.
To save more than 20% of your income? Sure, go ahead! But only if you don’t mind being super aggressive about paying off debt and preparing for future expenses like college tuition.
The last thing we want is to hold anyone back from living their best life now. We know that sacrificing short-term comfort can be hard, but if getting rich slowly means more happiness than being rich quickly… well, we’ll let you decide what works best for you. 🙂
As always, we welcome questions and comments below. Save for retirement
And remember: investing wisely isn’t complicated — it just takes a little planning and discipline!
4. Switch from taxable to tax-advantaged accounts
A 401(k) is one of many tax-advantaged retirement accounts. If you’re already contributing, it’s smart to continue even if you max out your available funds.
That’s because every dollar in a traditional 401(k), 403(b), or another type of pre-tax account reduces your taxable income, which can lower your total tax bill.
The government will eventually get its money from you through future taxation when you retire, but by taking advantage of a deduction today, you can save money today and reduce stress tomorrow.
A $15 difference in your paycheck might not sound like much. but considering half of Americans live paycheck-to-paycheck without an emergency fund or savings, even small amounts can make a big difference.
And once you start making more money, consider increasing your contributions to maximize your tax benefits.
If you don’t have access to a 401(k): You can open an IRA with most brokerages that offer commission-free trades. Just know that IRAs are different than employer plans; for example, they come with income limits.
To contribute: Look into opening a Roth IRA since contributions are made after taxes are paid and withdrawals aren’t taxed at all during retirement making them especially useful for younger investors who expect their tax rates to be higher later on.
5. Decrease expenses
While decreasing your expenses is not technically a way to save money, it’s a necessary component of any savings plan.
It’s not easy and often takes serious restraint, but one thing at a time. Start by cutting out small things like soda from lunch or coffee on the way to work.
You can also decrease expenses by lowering or stopping your contributions to a 401k, Health Savings Account (HSA), Traditional IRA, Roth IRA, or other retirement plans, as well as eliminating gym memberships you don’t use.
Once you have some cash saved up in an emergency fund, you can start putting that money towards lowering your expenses even more! This will help you achieve true financial independence faster than saving alone.
Remember: Don’t touch those investments until you’re truly ready to retire. Save for retirement
6. Avoid lifestyle inflation
Lifestyle inflation is a tendency we all have, especially during our peak earning years, to gradually spend more as we earn more.
You might not notice it at first because your lifestyle adjustments are small an extra $100 here or there doesn’t seem like much.
But over time, these small expenses add up and become part of your new standard of living.
It’s difficult to realize what a difference these choices can make because people are often reluctant to cut back on things they enjoy in order to save money.
If you want to truly reach your retirement goals, it’s important that you commit now not just to saving but also to spending less as you go along. To help with that goal, try one of these eight alternative ways to save for retirement.
7. Take advantage of catch-up contributions
If you’re 50 or older, you can make an additional contribution each year of up to $6,000 in a 401(k), and $1,000 more if you’re a catch-up saver.
Catch-up contributions aren’t automatic; your employer may not even offer them. However, if your plan does allow catch-up contributions and you reach age 50 during any calendar year before 2018, be sure to take advantage of them.
Just know that if your employer limits how much employees can contribute annually, you may have hit that limit before reaching age 50.
And remember that pre-tax savings are subject to income taxes when withdrawn in retirement so higher earners should consider non-traditional retirement accounts like Roth IRAs instead.
8. Consider foreign investment accounts
To diversify your portfolio and help you save for retirement in a low-risk, tax-advantaged way, consider investing in foreign companies or even opening an offshore bank account.
At first glance, it might seem difficult or even risky to invest in something you can’t actually see and touch, but when done right it is both safe and profitable.
8 Alternative Ways to Save for Retirement (That Actually Work)
You can get exposure to a foreign market by investing through a company based overseas or buying shares of a mutual fund that invests internationally.
Even purchasing international real estate—whether through a broker or on your own can offer long-term gains.
And if you choose carefully, you can actually use these investments as an income source during retirement without having to pay the U.S.