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Tips to Save More for Retirement in 2016

December 30, 2015  |   Tax Advice,Tax Tips   |   Tags: , , , ,  

Saving money for retirement is one of the most important, long-term habits to develop. According to the United States Department of Labor, fewer than half of Americans calculate the amount they need to save for their golden years

As the average American spends approximately 20 years in retirement, it is important to begin saving early on and as much as possible. Bankrate shares how you can save more for retirement in 2016:

“1. Save money
“If you’re not saving anything, start saving now. If spare change is all you can manage, great. Try to make it a dollar next week. Simply develop the habit of saving with every paycheck, no matter how small the amount.

“Beginning to save as early as possible is the key to success. Ideally, time and compound interest will do all the heavy lifting. Save a small portion of your income with every paycheck over a 30- or 40-year career.

“Waiting until later in life to begin saving requires much heftier saving over a shorter period of time and may even require working a few more years.

“Looking for a place to stash your retirement money? How about a certificate of deposit? Find the best CD rates at Bankrate.com.

“In general, experts recommend saving 10% to 20% of income, depending on your age and the number of years until retirement. Don’t worry if you can’t jump in at 10%. Save what you can and work up to it over time.

“2. Bump up savings with each raise
“When you start to save, no amount is too little. As time goes by and income increases, bump up your savings incrementally.

“If you have an employer-sponsored plan such as a 401(k) and your employer offers a match, contribute enough to score the full match so you don’t miss out on ‘free’ money from your employer.

“Technically, the match is probably factored into your overall salary and benefits package, so if you don’t contribute, you’re forgoing part of your compensation.

“3. Get debt under control
“When you’re in a jam or making a big purchase such as a house or car, debt comes in handy. Over time, though, it becomes a drain on your finances. Pay off debt as quickly as possible to start getting ahead.

“4. Use a tax-advantaged account
“The government offers sweet incentives to get people to save using accounts such as IRAs and 401(k)s. IRAs and 401(k)s allow savers to put away money before taxes are taken out. That decreases taxable income today. In retirement, withdrawals are taxed as ordinary income.

“The Roth version of the IRA and 401(k) requires that taxes be paid on contributions before they go into the account. But in retirement, withdrawals are tax-free.

“The 401(k) is usually a great option if it’s offered by an employer. The contribution limit is $18,000 in 2016. People 50 and older can contribute an additional $6,000 in catch-up contributions.

“Don’t have a 401(k)? No problem. A Roth IRA or traditional IRA offers the same powerful tax savings but lower contribution limits.

“In 2016, savers can contribute up to $5,500 to an IRA. People over age 50 are allowed to put in an extra $1,000 in catch-up contributions.

“5. Learn the basics of investing
“Investing can be as easy or difficult as you make it. Don’t be intimidated. A great way to start is with a core group of index funds. Each should represent a broad swath of the market. For instance, they could be funds with large-cap stocks, mid-cap stocks, small-cap stocks or international stocks.

“As a result, that incomprehensible list of funds you were sweating over becomes much less daunting.

“With a broadly diversified portfolio of index funds, investors who stick with their strategy through market downturns will likely outperform complicated strategies that try to time the market.”