As you move ahead in your career and your income increases, you enter your most active retirement saving years. You’ll want to take advantage of every strategy to maximize your plan contributions – including qualified retirement plans, non-qualified but tax-deferred accounts such as annuities, and simply being smart about expenses so you can save more regularly.
Retirement Saving Strategies
As your income increases, remember to increase your retirement contributions proportionately. Your financial professional can help you calculate how much you will need for retirement, and therefore how much to save annually.
While a good rule of thumb may be to save 10% of your income a year for retirement, at this point you need to start determining when you might want to retire and how big a nest-egg you will need. Of course, the earlier you plan to retire, the faster you must save, since you’ll not only need your nest-egg sooner, but it will need to last longer, too.
It is a good idea to get advice from a qualified financial professional on how to change your portfolio’s asset allocation as you age – generally becoming more conservative over time.
First Things First
Remember that even though saving for both retirement and education funding are important, they are not equally important.
There are many sources of college tuition aid, but there is no similar source of “retirement income aid.” Save for retirement first. Because of the tax incentives, it’s usually best to contribute the maximum allowable amount to your qualified retirement plans first, before setting up additional retirement accounts.
If your employer allows you to borrow from your retirement plan -- try to avoid it. Even though the interest you pay on the loan is effectively paid “to yourself,” any money you borrow from your 401(k) is taken out of the markets and therefore you might miss out on important market advances. In addition, those are dollars that won't benefit from compounding.
Most importantly, once borrowed, it’s hard for many people to free-up enough cash later to replenish their retirement account balance.
Keep What You Save, Keep It Working For You
If your employer allows you to borrow from your retirement plan -- try to avoid it. Even though the interest you pay on the loan is effectively paid “to yourself,” any money you borrow from your 401(k) is taken out of the markets and therefore you might miss out on important market advances. In addition, those are dollars that won't benefit from compounding.
Most importantly, once borrowed, it’s hard for many people to free-up enough cash later to replenish their retirement account balance.
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