It’s never too early to begin planning for your retirement. With the dollar rapidly diminishing in value, by the time retirement comes around, your savings might not be worth as much as you originally planned. This is why it’s important to put your money into assets that will appreciate over time.
One of the most basic assets is your home. If you can afford to make a down payment on a family home in your 20s, it just might earn you hundreds of thousands if not millions by the time you reach retirement age.
How is this possible? It’s called a reverse mortgage. When you turn 62 you can apply for a loan that taps into all that equity you’ve been building up for decades by making your monthly mortgage payments. If approved for the reverse mortgage you can take the proceeds in one lump sum payment or you can take equal monthly disbursements. You need never pay the loan back unless you move or die. You can learn more about reverse mortgages starting with this reverse mortgage calculator.
But what are some other essential financial moves you should make in your 20s when planning for retirement?
According to a recent report by U.S. News and World Report, the key to a successful retirement is starting early. It’s not easy for twenty-somethings, however, since they have a lot to pay for and their paychecks are relatively small. But this is also the best possible time to start investing for the future.
Even saving a little in your 20s will result in compound interest. It will do most of the work required for building your nest egg. Also, saving for retirement will qualify you for certain employer contributions and tax breaks. There is no question that you will be far better off in retirement if you start saving immediately in your 20s, especially if you’re putting some of your cash into appreciable assets like real estate and stocks.
Saving Automatically
When you begin your first job, you should insist on a small amount being withheld from the paycheck. This will then be deposited into a 401(k) plan. Maybe your job doesn’t sponsor a 401(k). If that’s the case, you can set up your own direct deposit to an investment account, a Roth IRA, or a simple IRA.
By automating this step every pay period, you will never forget or be tempted to skip on the saving process. You won’t miss the money being taken out of your paycheck, and your savings account will begin to accumulate over time.
Jobs with Retirement Benefits
U.S. News and World Report state that you should factor in a retirement plan when making your initial career decisions. Employer contributions or a 401(k) match are likely to give you the best return you can get on your investments. They double your money over a relatively short amount of time.
You also need to pay strict attention to when you vest the retirement benefits. Many job opportunities will be too good to pass up. That said, you need to consider sticking with the job you have until you are able to retain your employer’s contributions to your 401(k).
Do Not Pass Up a 401(k) Match
Should your employer require you to save a specific portion of your salary in order to qualify for a 401(k) match, you need to save the amount. For instance, a $0.50 match on each dollar you save represents a 50 percent ROI (return on investment) which is something that’s difficult if not impossible to find anywhere else in the workforce. Employer contribution is said to be one of the best ways to rapidly grow your retirement savings early on.
Consider Opening an IRA
If you work a job that doesn’t offer a 401(k) for some reason, you can attain the same benefits of tax deferral by opening up an IRA. Even though the contributions are typically lower, saving upwards of $5,500 per year in an IRA will qualify you for an annual tax deduction. You will also qualify for tax-deferred investment growth unless you need to withdraw the money from your account.
Make Contributions to a Roth IRA
Financial experts agree that Roth IRAs are a very good option for twenty-somethings who find themselves in a low tax bracket. When investing after-tax cash in a Roth IRA you are able to lock in your low tax bracket rate. This means the money will grow in your account every single year without being taxed. Withdrawals from accounts that are at least five years old are said to be tax-free.
If you happen to need money prior to retirement, it’s also permissible to withdraw contributions without incurring an early withdrawal penalty.