There are many numbers thrown around about just how big of a nest egg you need to retire, but the actual number depends on the lifestyle you want during your retirement. However, there is one thing that is universal to every person—building a retirement nest egg is one of the best financial planning decisions you can make. If you’re trying to decide which savings methods will best help your nest egg grow you should start by considering these four options:
Many businesses offer their employers a savings account known as a 401k. These accounts are a great way to grow your retirement nest egg as they allow a tax-friendly way to deposit part of your income into savings. The money in a 401k is invested in mutual funds, stocks, and bonds, meaning they have the potential to offer a high return rate, although this is not a guarantee. Many employers also match their employee’s 401k contributions up to a certain percentage of their annual income. In 2017 you can contribute up to $18,000 into your 401k and if you are over 50 the option for a catch-up contribution of up to $6,000 in 2017 may be available.
Individual Retirement Accounts, commonly known as IRAs, offer similar benefits to a 401k. If you don’t have access to a 401k account, an IRA is an essential step in building a retirement nest egg. Just like a 401k an IRA account lets you invest in mutual funds, stocks, and bonds. There are two types of IRAs that both offer tax benefits as long as the money is not withdrawn early. Both tax deferred IRAs and Roth IRAs can help you reach your retirement fund goal. The maximum contribution allowed each year is currently $5,500 if you are under 50, $6,500 if you’re over 50.
Conservative investing is a method of investing that is low risk and aims to ensure that the value of your portfolio doesn’t decrease. There are many types of investments that fall into the conservative investing category, these include annuities, certificates of deposit, and money market accounts. Annuities can be purchased from insurance companies and provide guaranteed payments either monthly, quarterly or annually. The amount of the payment will depend on the type of annuity purchased and the investment performance of the annuity. The value of your annuity grows on a tax-deferred basis, meaning you do not pay tax on the growth until the money is withdrawn. Both money market accounts and certificates of deposit offer a safe investment option, but they don’t offer a high return on your investment. These are great for people who are willing to sacrifice value growth for a safe investment option.
Create a budget
By far one of the simplest and easiest ways to grow your retirement nest egg is to create a budget that allocates a percentage of your income to your retirement savings. There are many methods for deciding how much of your income you should save each month but the amount will be different for everyone based on income, monthly expenses, and current savings. Aim to save as much as possible per month without leaving yourself financially struggling.
Whichever options you choose the advice that applies to each one is to contribute as much as you can every year!