How To Prepare for Retirement

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Preparing for retirement can seem like a daunting task but it doesn’t have to be if you properly prepare. Unfortunately, many people wait until it’s too late to begin saving for retirement and it becomes difficult to enjoy the golden years. However, this article will go over ways you can arm yourself with the best possible ways to prepare for retirement. Don’t let the thought of not having enough saved stop you from realizing your life long goals and dreams.

Leveraging Time

Arguably the most important aspect of saving for retirement is starting early. Allowing your investments to compound over time will allow your retirement nest egg to grow in a respectable manner. The plan of compounding your interest and asset appreciation will work heavily in your favor in the long term.

How you can take advantage of investing early is to automate 401k contributions. Regardless if the market is having a bearish trend in the short term, continuing to invest on a regular basis will help your overall portfolio growth in the long term. Attempting to time the market is difficult and should you fail to do so, it can be damaging to your portfolio.

Rebalance Your Portfolio

Another way to prepare for retirement is to ensure you are rebalancing your portfolio every so often. While it’s important to review your portfolio annually, rebalancing your holdings every so often can ensure you are properly caring for your retirement investments.

For example, while you invest in your 20’s and 30’s, your portfolio may be able to handle risk better than someone who is nearing their 50’s and 60’s. When reviewing your portfolio, ensure you take into account the risk profile, your returns and the expense ratio for each fund you invest in.

Passive Investing

Attempting to time the market has been proven to lack behind those who passively and consistently invest their money. When investing for retirement, steady and constant investing will benefit you more than active investing and attempting to time the market.

To passively invest, vehicles that are typically used include mutual funds or exchange-traded funds. Many 401k plans have these and not only can you invest the same each month, but you’re also doing so in a tax-advantageous manner. Similar to leveraging time, investing early and steadily will benefit you over the long term. Otherwise, you’ll be playing catch up and that can put your portfolio in a risky position.

Tax Advantages

Lastly, to better prepare you for retirement take advantage of the various investment vehicles that are tax-efficient. Many employers will offer their staff a 401k plan, and by investing in the plan you are using pre-tax dollars. When it comes time to take distributions from the plan, you will pay taxes at your current income level.

If your employer doesn’t offer a 401k, you can also take advantage of an IRA that also utilizes pre-tax dollars. Keep in mind the contribution limits though for each plan because once you reach the limit, you’ll have to wait for the next tax year to contribute again. While you can open a traditional brokerage account, these do not carry tax benefits and can carry a larger tax burden on your investments. Saving for retirement can seem intimidating, but by starting early and saving often you can build a portfolio that will last you well into your golden years. To begin saving early, automate your contributions to your 401k or IRA. From there, ensure you are reviewing your portfolio at least on an annual basis to give you the best chance at maximizing returns. Lastly, take advantage of the different retirement plans out there and maximize your dollars. If you prepare properly, you’ll be able to retire with confidence.

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