Retirement strategies that work
While most people give lip service to the idea of saving for when they retire, many do not have enough money in their accounts. In a 2017 report by the Economic Policy Institute, almost half of American families had no retirement account at all
At the same time, experts recommend that people try to have approximately 20 times their current annual incomes in their accounts to live comfortably. Choosing retirement strategies that work is important, and implementing them as early as possible is crucial if you want to enjoy a good standard of living during your golden years.
What are retirement strategies?
Retirement strategies are the plans that you make and implement so that you will not run out of money when you are retired. Retirement strategies should take into account the need to grow the savings balances while also balancing the need for safety.
Growth is important as a hedge against the inflation rates that you will face after you have retired. As time passes, an investment portfolio that is too safe will erode in terms of its value. The right retirement strategies should balance your need for safety with your need for growth so that you can maximize the amount that you will have available to you.
Different types of retirement strategies
There are several different types of retirement strategies that you can choose. One good way to start is to divide your portfolio into two areas. One part may be diversified as broadly as possible in order to enjoy growth while also hedging against inflation. The other portion may be focused on a fixed income and have risks that are low. This helps to reduce the volatility of the total portfolio.
Instead of focusing on investing for income, it may make more sense to invest for the total return. Investing with a focus on your total returns can provide you with more growth and reduced risks. Automatic rebalancing within your classes of equity can work to enhance the long-term performance of the portfolio.
The best retirement strategies
The best retirement strategies for you will depend on multiple factors, including the following:
- Your current age
- When you plan to retire
- The needs of your family
- The amount of money that you want to have
- Your life expectancy
- Plans to age in place
- Your income
The most important strategy for planning for retirement is to start saving now if you haven’t already. Savings and investments should be a lifelong practice that you engage in constantly whenever you get paid. Beyond that, your individual retirement planning strategies may depend on your goals, how near to retiring you are, how much you have already saved, and your life expectancy. It is possible that you could live for 30 or more years after you retire, so it is wise to plan as if you will live at least that long.
Retirement plans and retirement planning
Some people approach their retirement plans by drafting comprehensive financial plans and then following them as closely as possible. Others take a random approach without much in the way of retirement planning. It is obvious that people who fail to engage in retirement planning are less likely to have enough money to live on when they are older.
Planning for retirement can be done on your own or with the help of a financial advisor. Having help from a professional with your retirement planning may help you to make certain that you do not overlook anything and that you will have the best retirement plan possible for your goals. However, there are automated alternatives that can help you to enjoy low- or no-cost investments and that keep your best interests in mind at all times.
Why personal retirement planning is important
Personal retirement planning is essential so that you can realize your goals of being able to support yourself comfortably after you have retired. While you might look forward to receiving Social Security benefits, they will likely only pay for the most basic of your living expenses. Personal retirement planning can help you to make certain that you are able to live well rather than living poor in your golden years.
Most people no longer receive pensions from their employers, making it necessary for you to consider other types of accounts. These accounts may include the following types:
- 401k and 403b plans from your employer
- Simple IRAs
- Roth IRAs
- Solo 401k plans
- Individual retirement arrangements
- Health savings accounts
What is a simple retirement plan?
People who do not have the time to devote to drafting a comprehensive financial and retirement plan can rely on a simple retirement plan. While a simple retirement plan may not be as precise, it can still operate as a fallback option to help you to save enough on which to live comfortably. Some of the steps that are included in a simplified retirement plan include the following:
- Save 15 percent of your gross income
- Save money in a tax-deferred 401k or an IRA
- Put some of your money in a target date fund
- Review your plan at least annually
- Make certain that you are still on track when you are 10 years away from retiring
What is a financial plan?
A financial plan is a comprehensive evaluation of your assets, income, liabilities, and financial goals. Drafting a good plan may take some time and effort, but it can serve as an important roadmap to your financial future.
Your plan should include the following elements:
- Your financial goals
- Your net worth
- An income and spending plan
- Retirement strategies
- Comprehensive insurance plan
- Customized asset allocation strategy for long-term investments
- Income tax plan
- Estate plan
What is a traditional IRA?
A traditional IRA is a type of account that you can establish on your own outside of your job. This type of account allows you to contribute up to $6,000 beginning in 2019 if you are under age 50 and up to $7,000 if you are older.
Traditional IRAs allow you to make deductions on your taxes for your contributions in your current year. When you take distributions later, you will be taxed at your ordinary tax rate.
What is a 401k?
A 401k is a type of employer-sponsored account. 401k accounts became much more widespread when companies started ending pension plans. These plans have special rules and are governed by ERISA.
There are several 401k strategies that you might want to implement at your current job. There are also several 401k strategies that you might want to consider if you have funds left behind in 401k plans that are managed by your former employers.
Your 401k strategies
Your 401k strategies may depend on several factors. If your employer offers matching contributions, you should plan to contribute at least the matching percentage amount. You should avoid including company stock of your employer in your 401k plan because your savings could disappear if your employer goes under in the future.
If you have accounts that have been left behind with your former employers, your 401k strategies should include completing 401k rollovers into an individual retirement arrangement account or a Roth IRA at a low- or no-cost brokerage. By implementing wise 401k strategies, you can maximize your savings for the future.
What is a Roth IRA?
A Roth IRA is a type of account that allows you to take future distributions that will not be taxed. When you open a Roth account, you will not be able to deduct your contributions in the current year.
Implementing strong Roth IRA strategies can help to ensure that you will be comfortable in the future. These types of accounts also allow you to continue making contributions past age 70 1/2 instead of having to take mandatory distributions.
Roth IRA strategies
There are several Roth IRA strategies that you should consider. Since you do not have to take mandatory distributions beginning at age 70 1/2, you can treat your Roth IRA as a legacy for your family.
Other Roth IRA strategies include contributing your Social Security benefits to your account if you are older and still working. Roth IRA strategies also include starting early, taking advantage of compounding, making the maximum contributions that you can make each year, and converting your traditional individual retirement arrangement account into a Roth account. The reason to convert is because there is no contribution limit when you rollover funds into a Roth.
Retirement plan options
There are multiple retirement plan options. You should review the different types of accounts so that you can select the types that fit your needs and your goals the best. After you have chosen your plans, you will then need to pick your investments.
The IRS has compiled a list of different types of plans. It might make sense for you to read about each type so that you can decide which ones will fit your needs and help you to accomplish your financial goals.
Self-employed retirement plan options
If you are self-employed, it might be more challenging for you to save for your future. However, it is just as important for you to save money as it is for people who are employed by others.
Self-employed people may also reduce their taxable income by opening their own accounts. Your retirement plan might include opening a solo 401k or a SEP-IRA as a self-employed person. Your self-employed retirement plan should address your goals, and it should also include income tax strategies. When you have a self-employed retirement plan, you can help to make certain that you will be able to retire and not be forced to continue working well into your old age.
Your planned retirement age
Your age now and the age at which you plan to retire are important when you are designing your retirement strategies. Your retirement planning strategies should include an assessment of how much you need to save to reach your savings goals. When you have a lengthy period of time to save, your retirement strategies may include higher-risk investments.
If you are nearing the age of retirement, you might want to adopt retirement strategies that are more conservative. The retirement strategies that you choose will also be impacted if you need to catch up on your contributions.
Your retirement strategies and your IRA strategies should also take into account the applicable rules. Retirement strategies that work take the rules into account so that errors are minimized in your retirement planning.
Your retirement planning strategies and IRA strategies should likely include plans to make the maximum contributions that are allowed for each different type of account. You will also want to include retirement planning strategies that help you to retire on time. IRA strategies should be undertaken with the knowledge that you will have to take mandatory deductions beginning at age 70 1/2.
Early retirement strategies
If you plan to retire early, you will need to employ special retirement strategies and IRA strategies to reach your goal. Planning for retirement for people who want to retire early will require you to implement some of the following early retirement strategies:
- Add passive income streams
- Contribute the maximum allowed amounts
- Budget carefully and stick to it
- Cut out unnecessary expenses
- Invest as much of your post-tax income as possible
- Pay off your debts
- Save up an emergency fund
Retirement planning for people who want to retire at an early age should begin as soon as they start their careers. The retirement strategies should be reviewed and modified as necessary so that your early retirement strategies continue to work to help you to meet your goal.
How investing works at M1 Finance
M1 Finance allows you to automatically invest in a custom portfolio for free, so you can save time and earn more. While many 401k plans and IRAs contain hidden fees that can eat into your returns, M1 allows your money to grow unhindered by commissions and management fees.
M1 offers intelligent automation to make investing effortless. Simply choose your own stocks and funds to build a completely custom investment portfolio or choose from nearly 100 expert portfolios tailored to various risk tolerances, time horizons, and financial goals. Then, just deposit money, and the platform automatically invests it in your portfolio so you can skip the manual trades and calculations.
The platform also offers automatic dividend reinvestment and built-in tax-efficiency to help you even more. Just sit back and watch your wealth grow over time.
Why investors choose M1 Finance
Investors choose M1 Finance for their retirement planning and investments for multiple reasons. The company is a no-cost investment vehicle, which can help you to save substantial amounts over your lifetime. You can choose to roll over your 401k into a traditional or Roth IRA with M1, then automate your investing so you never miss a chance to invest in your future.