Retirement Nest Egg

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While not many are aware of it, a comfortable and financially independent retirement entails years of sensible planning and discipline.

Undeniably, everyone would want to look forward to retiring comfortably but oftentimes, the process is seen as a complex endeavor that requires time and expertise. However, nothing can be farther from the truth.

While it may seem complicated at first glance, creating a sound retirement plan can be done sans the headache.

Get your retirement preparation off to a good start by arming yourself with an open mind and the following financial and investment basics.

• 1. Sketch a retirement plan.

For many individuals, this can be very challenging.

Fortunately, while undoubtedly difficult, it can be done.

As recommended by the US Department of Labor, begin the process by identifying your net worth. In essence, net worth represents the amount of money you will have to your name once you sell all your assets and pay off all your debts (e.g. the value of your property minus the amount of mortgage you still have to reimburse).

Ideally, the figure you end up with should be positive. However, if it is otherwise, do not be disconcerted. Instead, find out a way to turn your finances around. You can even seek the help of a financial advisor or an accountant to help you figure out financial considerations you might not be familiar with.

Essentially, the consummate retirement nest egg should be able to deliver between 70 to 90 per cent of your pre-retirement and pretax salary. With that in mind, you need to consider the amount you need to achieve the goal you have in mind. Equally as important should be finding ways to ensure the contributions are made regularly.

• 2. Start saving early.

Saving money for years in order to still enjoy at least 90 per cent of what you get monthly once you retire will seem like a preposterous idea for many.

How is it possible to save for retirement when you are still living your life?

This is where the power of compound interest will come in very handy.

Contributing even just minimal amounts to your IRA or 401 (k) will help it grow by leaps and bounds over the years.

In addition, saving early will prove beneficial when the time to retire comes. In line with this, ensure you designate a certain amount of your income on a bi-weekly or monthly basis. You can even arrange to have it automatically taken from your paycheck, just like your taxes.

• 3. Diversify your investments.

When it comes to investments, the importance of not ‘putting all your eggs in one basket’ cannot be overstated.

Economists, investment bankers and financial advisors agree that the more diverse the portfolio, the safer it is.

This is highly logical considering the fact that being involved in only one kind of investment will make you highly vulnerable if the market associated with the investment encounters problems.

As a good rule of thumb, don’t stop with bonds and stocks. Investing in pharmaceuticals or telecommunications is something you can look into if you wish to spread your risk in other sectors.

• 4. Automate your savings.

In your quest for sound financial advice, chances are you have heard the phrase ‘pay yourself first’ countless times and with good reason.

Automating your savings will not only make things smooth sailing, but it will also help ensure you can achieve the financial goals you have in mind.

In addition, not only will you get the opportunity to expand your nest egg without stressing much about it, but more importantly, automating will help you easily reach the financial goal you have set in the desired timeframe you have chosen.

• 5. Consider giving your savings a tax-advantaged boost.

Just like a 401 (k), IRAs also provide large tax breaks you can take advantage of.

Fortunately, when it comes to IRAs, two options are available at your disposal: Traditional IRA and Roth IRA. The former provides tax-deferred growth and denotes paying taxes on your investment gains only when you make withdrawals.

A Roth IRA on the other hand, does not denote deductible contributions but offers tax-free growth. This means that you don’t have to pay for tax when you make withdrawals.

Knowing the difference between the two will help you easily identify as to which type is more to your liking.

Creating a financially independent and worry-free retirement years ahead is no easy feat. However, as long as you plan accordingly and play your cards right, you are guaranteed a retirement you can truly enjoy in comfort.