Tips for Making the Most of Retirement Funds
Updated on: November 2022
Written by: Kelly Koeppel
Every adult wants to retire with more than enough money in their savings account. To make the most out of your retirement funds — and live the lifestyle you want — you’ll need to create a retirement strategy.
Finding, and sticking to the right retirement strategy isn’t always an easy process. It’s important to set aside a portion of your income for retirement, without compromising your current lifestyle. You’ll also need to balance contributions to your retirement account with your regular expenses.
In short, a comfortable retirement usually requires planning. Many retired adults live on a fixed income where they receive a set amount of money each month from their retirement accounts. Maximizing your retirement accounts before you retire helps create an uncomplicated, enjoyable retirement experience for you and your family.
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Pay Attention to Employer Retirement Plan Match
Using an employer-match savings account is one way to begin saving for your retirement early. Some employers will match your contributions to a retirement plan up to a certain percentage. If your employer matches your investments, it’s a great idea to exceed your employer’s regular contributions if you’re financially capable of doing so.
Before you get too excessive with these contributions, you should know the limitations set up by the Internal Revenue Service (IRS). Each year, the IRS identifies how much money you can contribute to your 401(k) — an employer-sponsored retirement account. That amount was $20,500 in 2022, an increase from $19,500 in 2021.
The IRS adjusts the maximum contributable amount each year, depending on the cost of living and other factors. This is the maximum amount of money you can deposit into your 401(k) each year, not including any contributions made by your employer.
Avoid Withdrawing Money Before Retirement
To maximize the amount of money in your retirement accounts, avoid making any withdrawals before you retire. Unlike many other savings plans, retirement accounts typically charge a percentage of your principal if you make a withdrawal before you reach the eligible retirement age, which is 59 ½ years old, according to the IRS.
Unless you need funds in the event of an emergency, withdrawing retirement funds early can cost you. You’ll have to face an additional 10% tax, and you’ll be left with fewer available funds when it comes time to retire. You’ll also earn less interest on that money since you’ll have less left in the account.
Of course, the IRS does have a couple of exceptions to their additional 10% tax rule if you’re facing extreme financial hardship, but as a whole, it’s best to avoid touching these finances until you retire.
Try To Be Responsible
Financial literacy and responsibility is particularly important when saving for retirement. This means identifying an appropriate retirement savings strategy and monitoring the performance of your retirement accounts over time.
This strategy can incorporate a variety of tactics including:
- Living within your means. For some, this may involve fewer luxury expenses like travel, and for others, it may involve cutting essential items in their budget.
- Cut wasted costs. Whether shutting off your lights more often or avoiding using your oven during the hottest part of the day, there are plenty of small actions that can lower your utility bill and lead to more savings for retirement.
- Create and track your budget. This can help you avoid impulse spending and make sure you’re on track for retirement.
- Responsibly invest. This will look different for everyone, but generally speaking, you should adapt as the economy changes. For example, you might need to reduce overall spending to protect your retirement funds from rising inflation rates.
- Evaluate your retirement account contributions. You may need to reduce the amount you contribute toward retirement accounts to cover unexpected medical costs. It’s important to keep contributions to your retirement account consistent, even if that means reducing the amount you contribute.
Diversifying your investment portfolio is one of the best ways to minimize risks while saving for retirement. This means investing your money across a variety of different assets, companies, and funds to prevent large losses from a single investment. When you diversify your funds, you also create new opportunities to generate interest across all of your different investments.
In addition to your employer’s retirement plan, consider regularly investing in funds or companies you trust. Even if these recurring investments are small, they can add up over time and better prepare you for retirement when it arrives. Make sure to monitor private investments over time, particularly if you’re investing without the help of a financial advisor.
Before making private investments, know that not all online stock trading platforms are created equal. Look for online trading platforms that are members of the Securities Investor Protection Corporation (SIPC), Financial Industry Regulatory Authority (FINRA), or another governing body. Many of the best online trading programs offer additional levels of fraud protection and carefully encrypt all of your personal data.
Read our review of the Best Online Stock Trading Platforms for 2023Read More
Become Familiar With Rules Regarding Your Investments
Each type of retirement account comes with a slightly different set of rules. These rules govern how you can interact with your account. They might determine your deposit or withdrawal frequency, your interest rate, or how long your money must remain in the account itself.
It’s important to understand these rules before you begin investing, to make sure you aren’t accidentally losing money. When you thoroughly understand the regulations that control your IRA, certificate of deposit, high-yield savings account, or other retirement account types, you’ll be better equipped to diversify your portfolio across the board.
Investing on your own can further help you retire with confidence. You might buy shares of stock in a private company, or invest a portion of your savings in a private equity firm that does the investing for you. Private investing helps to further diversify your savings, creating more opportunities for a healthy portfolio when it comes time to retire.
It’s never too early to start saving for your retirement. Though retirement might seem like it’s a long way, it approaches fast — and it’s important to be ready. The earlier you begin to put money away for retirement, the more confident you’ll be when retirement is right around the corner.
Even if you can only afford to put a little money away for retirement each month, or each year, it’s important to begin the retirement savings process. The earlier you begin to save for retirement, the earlier those funds begin to accrue interest and add more money to your portfolio.
Financially planning for your retirement can feel intimidating, especially if you’re behind your retirement schedule. If you’re not sure how to begin planning for your retirement, consider hiring a financial planner you trust. They can help you balance retirement planning with your other costs, and create a strategy that doesn’t limit your current lifestyle more than necessary.
Content on this site is for reference and information purposes only. Do not rely solely on this content, as it is not a substitute for advice from a financial advisor or accounting professional. Aging.com assumes no liability for inaccuracies.