How You Can Financially Prepare for Retirement?
Far too many Americans aren’t prepared for retirement whatsoever. They haven’t made any financial plans for their future and are simply waiting until they get closer to their retirement age to take action. They may not be able to retire at all.
If you’re not prepared for your retirement, you need to change that as soon as possible. The earlier that you plan for this stage in your life, the better.
How can you plan for this? Open up the following savings accounts.
A 401(k) is an employer-sponsored retirement savings plan. The plan allows employees to automatically deduct money from their paychecks and move it into a retirement savings account. The plan will have a variety of pre-arranged investment options (for example, mutual funds), which should help the collected contributions grow faster.
If your employer offers a 401(k) plan to employees, you should sign up for it. Once you’ve signed up for the plan, do your best to max out your contributions (as long as it’s financially feasible with your budget). Your employer might offer matching contributions for participating employees. Take advantage of this feature to boost your savings quickly.
If you don’t have a 401(k) through your employer (or a traditional pension plan), you will need to prepare a retirement savings account all on your own. One of the best ways to accomplish this goal is to open up an individual retirement account (IRA). It is a tax-advantaged account that allows you to collect retirement savings and choose investments to help those savings grow.
An Emergency Fund
An emergency fund is a reserve of personal savings for urgent, unplanned expenses. When an urgent expense — like a water heater repair — crops up, you can withdraw the necessary savings from the emergency fund to cover the expense without disrupting your usual budget.
Another benefit of an emergency fund is that it can stop you from making early and unnecessary withdrawals from your retirement savings accounts whenever there’s an urgent expense outside of your budget.
What If You Don’t Have Enough Savings?
If the savings in your emergency fund are low, you should still leave your retirement savings accounts untouched. There are other alternatives that you can turn to first.
You can use your credit card to cover the expense quickly and then pay down the card’s balance later on. Or you can try to apply for an online personal loan and use borrowed funds to cover the expense. As long as you meet all of the qualifications for a personal loan, you can fill out an application and send it in. It just might get approved. With the help of a personal loan, you can resolve your emergency and then focus on a repayment plan through a steady billing cycle.
Why Shouldn’t You Use Your Retirement Savings in Emergencies?
There are several issues with making early retirement fund withdrawals. You will be charged an early withdrawal penalty if you are under the age of 59 ½ — this penalty is typically 10% of the amount you’re withdrawing. Your withdrawal will be subject to 20% income tax. And most importantly, your early withdrawal will dwindle your savings meant for the future.
Don’t enter your golden years unprepared. Make these financial preparations now so that you have a long, comfortable retirement.