Saving for retirement is absolutely essential. While there are some social welfare programs, certain cases like social security in the United States, there is never a guarantee that anyone is going to provide you with the full amount of income, that you need to have for your retirement fund. Knowing what to invest in and how much to invest, is hard, but the retirement tips in this article can help.
Determining your needs
The earlier you can make your retirement plans and the more money you put aside for retirement, the better your retirement plans will be. Retirement income The best way to figure out how much to save for retirement is to determine how much you need for retirement income. Retirement income is the amount of money that you have available for you to live when retired. Your income is going to need to cover all your expenses including housing, food, health care and activities. Expenditures Make a reasonable determination for how much you need, based on what your current expenditures are and any changes you plan to make. For instance, if you are going to downsize your house, your savings and investments don't necessarily need to be enough to cover your current mortgage.
Living off the interest
When you do retire, the best thing to do is to live off the interest that your retirement savings produces. In other words, don't touch the principle that you put aside. Whatever it generates as far as a return or interest should be enough to get you through. If, for example, your money earns six percent and you have $100,000 saved, then you would only have $6,000 to live on each year. By not touching the principle, you make sure that you never run out of money.
What to invest in
When you start putting aside money for retirement, you need to decide what to invest in. You should consider taking advantage of any tax breaks when opening investment accounts. For instance, people in the US can invest in their 401K with pre-tax dollars, or can put aside money in an IRA with pre-tax money up to $5,000 per person per year. Investing in tax-advantaged investments allows your money to go farther.
When you invest your money, you also need to decide where it is going. Some of the money may be in stocks when you are younger since you can take bigger risks for potential bigger gains. The older you get, the more conservative your investments should be, so things like annuities or mutual funds may begin to make more sense.