Retirement security is a major issue in the United States. Many people will end up leaving work with too little money in their bank and investment accounts. Sadly, this could lead to financial struggles for millions of Americans who don't have the savings they need to supplement Social Security.
National Retirement Security Week, which runs from Oct. 15, 2023 to Oct. 21, 2023, is designed to raise awareness of the importance of preparing for your later years. Since that's going on right now, it's a great time to take some concrete steps to ensure you have the money you need to enjoy life once you've stopped working.
But what exactly can you do? Here are three tricks to help ensure you're ready to retire with plenty of spare cash in your brokerage accounts when your time comes.
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1. Take full advantage of tax savings
One of the best tricks to ensure you have security as a senior is to take advantage of the help Uncle Sam offers. Specifically, the government gives you some tax savings if you contribute to certain kinds of retirement accounts.
You can invest up to $22,500 in a 401(k) in 2023 or up to $30,000 if you're 50 or over. When you contribute to your account, the amount you invest is deducted from your taxable income in the year you invest. That means each contribution won't actually end up costing you as much out of pocket.
Let's say, for example, you're in the 22% tax bracket and you contribute $6,000 to your 401(k) this year. You don't pay the 22% tax on the $6,000 so you save $1,320 on your taxes. Your take-home income isn't reduced by $6,000 -- it's only reduced by $4,680.
And, in some cases, your company may match part of your contributions. If your employer offers a 50% match, it would invest another $3,000 if you contributed $6,000. You'd end up with $9,000 saved for retirement and only have $4,680 less to spend.
If you don't have a 401(k), you can also take advantage of tax breaks for retirement savings by investing in a traditional IRA or a Roth IRA. A traditional IRA works just like a 401(k) (although with lower contribution limits) and you get to deduct the money you contributed. A Roth IRA doesn't allow that upfront contribution but allows you to take money out tax-free as a senior.
You should be using these accounts if you care about your retirement security. Sign up for your 401(k) at work today by talking to HR, or open an IRA with any brokerage firm if you don't have a workplace plan.
2. Automate your contributions
The next big trick to try is to automate contributions to your retirement accounts. This simply means you make sure the money moves to them automatically without you having to manually move it over.
You can sign up with HR or your 401(k) plan administrator to do this easily if you have a workplace plan. The funds can be contributed before you even get your paycheck. If you're contributing to a Roth or traditional IRA, you can also do this with your brokerage firm or from your bank account.
Making contributions automatic means you won't miss one and you won't have to think each month about when and how to invest for your future. It will just happen by default.
3. Buy assets using dollar-cost averaging
Finally, you should strongly consider investing money in the stock market. One of the easiest ways to do this is to use dollar-cost averaging. This involves investing a set amount of money in an asset on a regular schedule. For example, you might buy $1,000 worth of an S&P 500 index fund on the first of every month.
If you take this approach, you'll naturally buy more shares when the price is lower since your $1,000 will purchase you a larger number of shares in a lower-priced investment. You won't have to try to time the market, which can be tricky even for professionals.
Most brokerage firms and 401(k)s allow you to set up automatic investment purchases, so you should be able to do this easily. Just research what you want to invest in and sign up to purchase your desired amount on a set schedule.
By taking these three steps during National Retirement Security Week, you can ensure you set yourself up to have the security you deserve as a senior.
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