You want to not only have enough money to live comfortably when you retire, you also want a little bit more. Maybe you want enough to travel, start that side business you always talked about or purchase your dream home since you'll have time to enjoy it. Whatever your retirement dreams are, maximizing your retirement income can help.
Here are some ways to do just that.
TUTORIAL: Retirement Planning
Start Saving as Soon as Possible
You've no doubt heard of the benefits of compound interest. The key is that the sooner you start saving, the sooner you start gaining the interest and the sooner that interest can start compounding. Two years makes a difference, but five or 10 years makes a big difference in the amount you end up with upon retirement. So even if you're on a tight budget, start stashing at least a little bit of it away in a retirement account. Have it automatically deducted from your paycheck, so you're not tempted to spend it. You're investing in your own future. (For related reading, see Accelerating Returns With Continuous Compounding.)
Start Saving With a Lump Sum
This one isn't always possible, but if you happen to have a nice lump sum of money come into your possession, consider using it as the base of your retirement fund. Graduations and weddings often result in gifts of cash, so use these as the seed of your retirement account for increased compound interest and a larger return when you retire.
Figure Out Which Account Works for You
According to David Braze of The Motley Fool, there are 11 different types of IRAs. For example, the Spousal IRA allows for contributions for your non-working spouse to a separate IRA. The Coverdell ESA formally known as Education IRA allows you to make contributions of up to $2000 a year which the IRA's beneficiary can withdraw, untaxed, to use toward a program of higher education.
Get Matching Contributions
Two types of IRAs, the Simplified Employee Pension (SEP-IRA) and the Savings Incentive Match Plan for Employees (SIMPLE-IRA), allow employers to contribute to employee IRAs. Obviously, having an additional or matching contribution to your IRA will increase the value, so be sure that you ask your employer to do so.
Avoid Getting Overtaxed
There are different tax laws for different types of IRAs and 401(k) accounts; the traditional IRA allows for some deductions on qualifying contributions, but withdrawals will be taxed. The Roth IRA, on the other hand, does not allow for tax deductions on contributions, but it does provide for tax-free withdrawals on qualified withdrawals. (For related reading, see An Introduction To Ineligible IRA Contributions.)
Talk to a Pro
It's a good idea to do your own research, educate yourself on your options and make informed decisions. You can certainly understand the differences between the various types of IRAs. You can get advanced help from a financial professional whose education and career focus on planning and saving for retirement. Get the most out of a financial consultant by doing your homework first. Come to the meeting with some basic understanding of the options, your own financial goals and your specific questions about how best to achieve those goals. With your consultant's insight and your own intelligence, you'll be able to find the best strategies for maximizing your retirement income.
Look Outside the Box
Don't be afraid to look at other options for raising and saving your retirement income. You can invest in real estate, become a venture capitalist, raise interest by lending your own money, or invest in items that have appreciable value in order to grow your retirement income. The best thing to do is become active in overseeing how your retirement income grows. Passivity is deadly. Get interested, get involved, educate yourself and start managing your future now. (Find out how VC firms make the market go round, and round, and round. For more, see Cashing In On The Venture Capital Cycle.)
The Bottom Line
Having enough money to live comfortably when you retire isn't enough for most people. It's also important to have a little extra so you can fulfill some of your life long dreams like traveling when you retire. Whether it be getting advice from a pro or saving earlier, there are many simple ways to make sure you're prepared when you retire.