Want to retire in comfort? Time you started investing. Here’s how.
If you’re young, retirement is probably the last thing on your mind right now. There’s a house, car, and possibly even a family to pay for, and retirement just seems so far off, doesn’t it?
However, research from Boston College found that “50 percent of households are ‘at-risk’ of not having enough to maintain their living standards in retirement.” Combine that with rising healthcare costs and it’s clear you need to plan early.
At 65, you’re eligible for full retirement benefits issued through the Department of Social Security. The average amount for retirees is just over $1,500 per month, but how much you get is calculated on the average of your highest earnings in a 35-year period (up to the age of 62) and capped at $2,366 a month.
Will that be enough? Maybe. But if you want to spend your twilight years in financial comfort, you need to do some investing. (Note I wrote investing, not saving, since savings rates are laughably low at the moment.)
Here’s how to plan for retirement.
Make the most of your 401(k)
One of the most popular retirement savings plans is the 401(k). Investment plan for retirement allows you to put a portion of your salary, up to a maximum of $19,500 per year, into an investment account to be accessed when you retire. If you’re over 50, you’re eligible to pay an additional $6,500 per year, which allows you to boost your payout or catch up if you’ve fallen behind.
It’s worth checking your employer’s stance on 401(k)s, as many will match your contributions to a certain point. A study by Vanguard found that companies on average matched up to 3% of total salaries, which is a nice little bonus. To put that into a dollar figure, that’s around $1,500 per year on the average salary.
Once the money is in your 401(k), you can choose where to invest it. There is a range of retirement investment options, with interest generally correlating to risk — as in, the bigger the risk, the bigger the reward. Typically, a 60/40 split between equities and cash should earn you around five to eight percent interest per year.
Invest in an Individual Retirement Account (IRA)
If you max out your 401(k) or just want to supplement it with another retirement plan, consider an IRA. First, check if your employer will contribute towards one in the form of a SEP-IRA or SIMPLE IRA.
Unlike a 401(k), SIMPLE IRAs have a limit of $13,500 a year or $16,500 for over 50s, but employers can pay up to 3% of your salary towards them, too. It’s worth noting your employer chooses where to invest your IRA funds, so it could pay less than a 401(k).
Another option is a traditional IRA that can be invested in whatever your financial institution offers. Many choose mutual funds or even a CD (certificate of deposit), though this only pays up to 1.8% APY right now.
You might prefer the Roth IRA, which allows you to pay income tax on your contributions now. The benefit of investment plan retirement is that when you withdraw the money as you retire, you’re not subject to income tax.
In any case, the maximum contributions for both traditional and Roth IRAs are just $6,000 a year.
Seek higher returns in alternative investments
IRAs and 401(k)s are safe, reliable, and employers can boost your earnings. However, you can only put in so much each year, and if you withdraw your money before you’ve hit retirement age (59 ½ to be precise), you’ll pay a hefty tax bill.
If you’ve maxed out your contributions or want easier access to your money without sacrificing decent returns, you could try alternative investments.
Invest in secured peer-to-peer loans with us, for example, and you can pay in as much as you like with the comfort of knowing your investments are backed by collateral. You’ll earn up to 7% APR on fixed terms of 1–9 months, so there’s plenty of flexibility.
Our anytime withdrawal investment account, Flex, lets you put money into a lending pool where it’ll earn 4% APY, but the kicker is that you can take your investment out at any time without penalty.
If you haven’t done so already, check with your employer to see what retirement options they’re offering and whether they’ll chip in. If you’ve maxed out your contributions and are looking at the safest investment for retirement, check us out.
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