Posted on Friday, January 24, 2025

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by AMAC, D.J. Wilson

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Planning for retirement is a great way to ensure financial security for your future. By taking the proper steps, such as spending money wisely and using disciplined saving principles, it’s possible to build a substantial nest egg for the later years. Here are some of the best ways to save for retirement:

SAVE EARLY

It is common knowledge that starting to save early for retirement is key. That’s because the sooner you begin saving money, the more opportunities your money will have to grow. For those late to the game of saving for retirement, even small contributions made consistently over time can accumulate significantly and have a positive impact on retirement.

Employer-sponsored retirement plans offer excellent ways to get started saving for retirement. Most have the benefit of employer matching contributions, which means that for every dollar an employee contributes, the employer will contribute an additional amount. Experts say this is like getting free money toward your retirement – so it’s important to take full advantage when you can!

Some popular employer-sponsored retirement plans include:

• 401(k): This is a defined-contribution, tax-advantaged retirement savings plan that is sponsored by one’s employer. Employees can defer a portion of their salary to this account and employers will match a portion of the money. Contributions are usually pre-tax and not taxed until distributed. In addition to employer matches and tax savings, 401(k)s are also desired for their high contribution limits. Note that there are penalties for withdrawing money before hitting a certain age – so do know the rules!
• 403(b): This works like a 401(k) plan; however, it’s a retirement plan for those who are employed by public schools, colleges, universities, churches, or charitable entities. Thus, it’s sponsored by a government organization or a non-profit – not a traditional employer. Like 401(k)s, employees can put a portion of their paychecks toward their account and employers can also make matching contributions to those accounts. The money is also pre-tax and not subject to taxes until distribution.
• 457: This plan is also like a 401(k) plan – but only in some ways. It is an employer-provided retirement plan that employees fund with pre-tax contributions. Employers can also match the amount contributed. Unfortunately, many do not. Like a 401(k), the money saved grows in a tax-deferred account until withdrawn in retirement. Unlike a 401(k), 457 plans are specifically designed for state and local government employees of certain tax-exempt status such as firefighters, police officers, public safety officers, city administrator employees, and public works employees. 457 plans also have fewer limitations for withdrawals than a 401(k).

CONSIDER OTHER GREAT WAYS TO INVEST

Individual retirement accounts (IRAs) are another terrific way to save money for the golden years. While it offers more investment opportunities, contribution limits are generally lower than a 401(k) plan. And, unlike the plans listed above, most IRAs are not sponsored by employers. So, there is a lack of matching contributions. Per Investopedia, there are two exceptions: SIMPLE IRAs and SEP IRAs. These may sometimes be offered by small companies with fewer than 100 employees. Self-employed people may also be eligible. Again, all plans are subject to special rules and limits, so it’s best to understand which plans are right for you. Traditional IRAs are tax-deferred until funds are withdrawn. Roth IRAs don’t provide a tax break in the year of the contribution, but qualified distributions are tax free in retirement.

USE OTHER TRICKS TO GROW YOUR NEST EGG

Your current tax situation and your retirement goals are major considerations for how to invest. Each may influence your decisions. Regardless, there are a few other important things to know about growing your nest egg. This includes:

• Diversifying your investments across different asset classes like stocks, bonds, commodities, real estate and more. This helps to minimize risk by not putting all your eggs in one basket. Additionally, it works to increase potential returns.
• Consider your risk tolerance. This means understanding how much risk you’re willing to take when it comes to investment strategy. Note that some investments are more volatile than others. Age may affect risk tolerance in that the older you are, the less time you will have to recoup losses – so you’ll want to be more careful with investing your money.
• Don’t ignore age-related opportunities, such as taking advantage of catch-up contributions. These provide opportunities to boost retirement savings. This is especially helpful for folks who started their retirement savings late.
• One may also take other measures to increase retirement savings such as spending money wisely, reducing debt, and prioritizing savings. Delaying Social Security is another step that can help by allowing you to maximize your benefits. (Insert link to our article entitled Getting a late start on retirement savings)

IN CONCLUSION

There are many great ways to save for retirement, but no one answer fits all. Do talk to a tax professional to understand which saving options will likely give you the most bang for the buck while minimizing the risks you can’t afford to take.