How To Make Your Retirement Money Grow


Payout Stage: Taxes On Profits

How To Retire Early – A Guide to Financial Freedom

You pay taxes on the money you receive from a non-qualified annuity, whether that comes in the form of the contracts structured payouts or through a withdrawal. This money is taxed as ordinary income, not as capital gains.

However, because you paid taxes on your initial investment, you are only taxed on the profits you make off a non-qualified annuity. This means that each payment you receive has two tax components: A portion of your payment is considered your principal and is untaxed. The rest of your payment is considered profit and you pay taxes on that.

While the IRS uses a relatively complicated process known as General Rule for calculating this, in general, the nontaxable portion of your payments is based on the ratio of your investment capital to the annuitys account balance. For example, if you invested $100 and the annuitys balance is $1,000, around 10% of your payments would typically be untaxed.

For more details see IRS Publication 575, which explains pension and annuity taxation and IRS Publication 939, which explains General Rule.

This tax status also applies to any heirs or spousal beneficiaries. If your payouts under the annuity transfer, for example to a spouse, they would pay income taxes on the portion of each payment attributed to profits. Depending on the nature of your annuity, it may also issue a lump-sum payment to your heirs after your death. This, too, would be taxed as income based on profits.

Use Social Security To Your Advantage

Social Security benefits can be a major factor in your retirement fund. Based on your birth year, your eligibility for full benefits may vary, but you should look into the best option for you.

For those born in 1960 or later, full retirement age, when you can receive full retirement benefits, begins at 67. Anyone born between 1938 and 1959 reaches full retirement on a varying scale between ages 65 and 67. You can claim Social Security benefits beginning at age 62, but in order to receive full benefits, you must wait until your full retirement age.

Get Into Furniture Refurbishing

Is everything you see filled with potential and possibility? Channel your optimism into furniture refurbishing and bring a little more beauty into the world.

Initially, you can do some small pieces for yourself pick up things that need some love from garage sales. Once youve refurbished a few pieces and taken pictures of them, you can hire yourself out to others.

Read Also: How Do You Combine Retirement Accounts

Things To Keep In Mind When Getting Started

This is your current budget, which takes into account all of your present-day income and expenses. While you should have some idea as to what you’ll need to save per month based on your retirement goals, you also need to make sure that you have that money to save. It’s a good idea to put retirement savings as a line item in your budget, just like food and shelter costs, so that you can set aside those funds every month.

This is a tool you can set up between your checking account and your retirement account so you don’t forget to save. Set it up so that on the same day every month maybe it’s the day you get paid funds you’re earmarking for the future go from your bank account into your investments. By doing it this way, there’s no risk of you spending that money.

Having a separate emergency account usually with about three to six months of salary saved up will allow you to cover any unexpected costs without throwing your retirement plans out of whack.

One goal for everyone should be to reach 65 debt-free. That includes credit card debt and especially the high-interest reward card kind car and mortgage loans, any student and other big loans. The reason is simple: you don’t want to be going into your non-earning years owing money.

Figure Out Your Retirement Budget

How I am saving 400 dollars every month to grow my retirement fund ...

How much is enough? That depends on your lifestyle and expenses, potential medical bills and the kind of support youll have from, say, a pension plan and Social Security. But as you review your savings goals, be careful not to set the bar too low, thinking youll spend less in retirement.

People typically dont downsize, says Harold Evensky, certified financial planner professional and founder of Evensky & Katz/Foldes Financial in Coral Gables, Florida. Its not uncommon for them to spend more in retirement than less.

Fill out a comprehensive retirement expenses worksheet to get a sense of where your money is going when a paycheck is no longer coming in.

To get a more personalized account, contact a fee-only certified financial planner, and make sure they put your needs before their own.

Don’t Miss: Do Federal Employees Get Health Insurance After Retirement

Ways To Maximize Retirement Savings

No matter what career path you choose, you’ll want to know how to get the most out of planning for the future.

After all, when you retire from your first career, many of your expenses will continue. There are still everyday bills to pay plus unexpected costs that can sneak up on you. Not to worry. If you maximize retirement savings, you can make the most of your next chapter.

From how much to save for retirement to what percentage of income should go to retirement, and how to replace your salary when you get there, here are six strategies that can help:

The Benchmarks For Those Closer To Retirement

The range gets wider as you get older, so we also provide more detailed estimates for people approaching retirement. This helps someone find a realistic target based on income and marital status, which affect Social Security benefits.

A Closer Look at Savings Benchmarks Later in Your Career

Savings Benchmarks Later in Your Career

11x 13.5x

Assumptions: See Savings Benchmarks by AgeAs a Multiple of Income above. Dual income means that one spouse generates 75% of the income that the other spouse earns.

You May Like: What Qualifies For Medical Retirement

Deal With Your Debt As Soon As Possible

One thing that will really hold you back in saving for retirement, and building wealth in general, is debt.

Focus on paying off high-cost debt first such as and student loans. These types of loans can come with interest rates in the high teens, which far outpaces what youre likely to earn through your investments. If your debt balance is compounding at those high rates, the best investment you can make is to pay down the balance as soon as possible.

If you can, try to pay off any mortgages before you reach retirement age. It will make living on a fixed income that much easier.

Invest 15% Of Your Income Into Tax

How To Retire In 10 Years (Starting With $0)

Now its time to put your plan into motion! Once youre debt-free with a fully funded emergency fund , youre ready to start investing 15% of your gross income for retirement.

Heres how you get started with your retirement savings:

  • Get the 401 match. If your employer offers a traditional 401 with a match on your contributions, make sure you invest at least up to the match to take full advantage of that free money. Does your company offer a Roth 401? Perfect! As long as youve got good mutual fund options, you can invest your whole 15% there.
  • Open up a Roth IRA. If youre using a traditional 401 and youve invested up to the match, work with a financial advisor to open a Roth IRA. Its a retirement savings account that lets you pay taxes on the money you put into it up front. That means the growth in your Roth IRA and any withdrawals you make after age 59½ are tax-free.Thats a win-win!For 2019, you can put a maximum amount of $6,000 into an IRA .3
  • Go back to your 401. If you maxed out your contributions to your Roth IRA for the year and still havent hit 15%, then bump up your 401 contributions until you do.

Inside your 401 and IRA, your investments should be spread evenly between four types of growth stock mutual funds: growth and income, growth, aggressive growth and international. Look for funds that have a good track record over a long period of time.

Read Also: Retirement Homes In West Palm Beach Florida

Caregiving And Child Care

Caring for a child or someone who is sick or impaired is one of the most rewarding things youll do, and for those who seek more interpersonal interaction in their work, caregiving can be the ideal fit.

One thing to keep in mind in any post-retirement career caregiving, consulting, teaching or otherwise is that your relationship to your coworkers may be different from what youre used to.

If youre trying to get a job where someone else hires you, theres a good chance that that person is going to be younger than you, says Vernon, who says hes gotten used to being by far the oldest person on the Stanford Centers research staff.

Its a new world, he says. Youve got to be open to working with people of all ages.

How to Make Money Caregiving

  • Start an at-home daycare: If you have friends and neighbors with young children, offer daycare services. Just make sure to check any licensing or insurance requirements.
  • Become a nanny: While there are no formal requirements for this job, its a good idea get CPR and first aid certifications and enroll in infant care and water safety classes.
  • Do after-school pickups: Some busy parents need someone to pick up their children from school and watch them for a few hours. This is a great option if you want flexible hours.
  • Care for a sick or impaired adult: Offer to provide caregiving services, such as cooking, cleaning and transportation, for an older adult to relieve their primary family caregiver.

Resources for Caregivers

How To Save For Retirement

Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list ofour partnersandhere’s how we make money.

The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

The best way to save for retirement is in a retirement savings account.

Were not trying to be cheeky. Just super literal.

There are lots of different types of investment accounts, but retirement accounts like IRAs and 401s were created specifically to give people incentives to save for retirement.

These accounts are some of the best deals going: Unlike regular investment accounts, they give you a tax break on your savings, either upfront or down the road when you withdraw funds. And in between, your investments are shielded from the IRS and grow without being taxed.

So when were asked how to save for retirement, our answer is to take full advantage of the retirement savings accounts available to you whether you’re a traditional worker or self-employed.

You May Like: Healthcare In Retirement Before Medicare

What’s My Current Asset Mix And How Does It Compare With My Target

When you open your retirement account, you’ll decide how you want your money invested. In a diversifiedportfolio, the investments you choose won’t have as much impact on your account balance as your overall asset mix will. And that asset mix can change without you lifting a finger!

For example, imagine you determined that 50% stocks/50% bonds was the best asset mix for you. If 4 years go by during which stocks return an average of 8% a year and bonds 2%, you’ll find that your new asset mix is more like 56% stocks/44% bonds.

Consider Vacation Dog Boarding

When it Comes to Making Money in Retirement, is $500 Better than ...

ROVER is a cool site that brings doggie parents together with dog lovers wholl watch their furry babies while theyre on vacation. If youre a dog lover, this is the perfect way to earn money and enjoy the companionship dogs offer too.

The company is U.S. based, but the first time you click on Become a Host, it will open a box inviting you to expand into your country. Be the first Dog Vacay host in your community!

Recommended Reading: What Are The Most Important Sources Of Retirement Income

See What A Difference A Few Dollars Can Make

If you think you can’t afford to contribute to your employer plan, consider this: Increasing your retirement plan contributions may help lower your overall taxable income.

For example, if you earn $50,000 a year and start to contribute $100 a week, your paycheck would be $75 less .

And saving any amount in a workplace plan, and getting it matched by your employer, means you’re getting at least some of your potential benefit.

Save Invest And Save Some More

Most experts say at least 10% of your income should go toward retirement. If youve started saving later in life, you may need to bump that up.1

Not possible right now? Thats OK. Save what you can and commit to increasing 1% every year until you can hit the mark. Try to save enough to get your employers matching contribution so you dont leave money on the table.

Options for saving and investing can include:

  • Company sponsored retirement plans like a 401, 403, or a Thrift Savings Plan for government employees
  • A variety of investments like mutual funds, stocks, bonds
  • Life insurance that builds cash value

The sooner you start, the more potential your money has to grow over time. Its all about compound earningswhen your money earns more money.

Lets say you invest $10,000. And you earn 5% over a year.

So now you have $10,500. Over the coming year, you make 5% not just on your initial $10,000 but also on the $500 you earned last year. Thats the benefit of compounding in action.2

Read When to start investing: 4 signs you’re ready to learn more about the power of compound earnings.

To learn how 401s, traditional and Roth IRAs, and Roth 401s compare, read about retirement savings account options.

Don’t Miss: Can You Use Life Insurance For Retirement

What Is A Systematic Withdrawal Plan

In a systematic withdrawal plan, you only withdraw the income created by the underlying investments in your portfolio. Because your principal remains intact, this is designed to prevent you from running out of money and may afford you the potential to grow your investments over time, while still providing retirement income. However, the amount of income you receive in any given year will vary, since it depends on market performance. Theres also the risk that the amount youre able to withdraw wont keep pace with inflation.

Potential advantages: This approach only touches the income not your principal so your portfolio maintains the potential to grow.

Potential disadvantages: You wont withdraw the same amount of money every year, and you might get outpaced by inflation.

For illustrative purposes only.

Calculate Your Net Worth

I’m 60 With $1 Million How Much Can I Expect To Spend In Retirement

You make money, you spend money. For some people, that’s about as deep as the money conversation gets. Instead of guessing how much money you have and where it goes, you can calculate your net worth, which is the difference between what you own and what you owe .

Assets typically include:

To calculate your net worth, subtract the value of your liabilities from the value of your assets. This number can give you a good idea of where you stand for retirement. Of course, net worth is most useful when you track it over timesay, once a year. That way, you’ll know if you’re heading in the right direction toward a well-funded retirement, or if you need to make some changes.

Recommended Reading: Dental And Vision Plans For Retirees

Find Out How Much Money You May Need In Retirement

Here’s how you do it: Use our Retirement Wellness Planner, a tool that gives a quick snapshot of how much income you may need in retirement. It also helps identify a surplus or gap.

Just plug in your current annual income, how often youre paid, your pre-tax contribution to your retirement account , current retirement savings, estimated Social Security benefit, current age, and desired retirement age. You can adjust your deferral to see how the numbers change.

This is also when a financial professional can be a big help if you want a customized plan for retirement. To learn more, read how to choose and work with a financial professional.

How Much Do You Need To Save For Retirement

One of the hardest parts about preparing for retirement is thinking about life as a 70-something. A lot of people get so overwhelmed about saving for an unknown future, that they end up not saving anything at all. Thankfully, planning for retirement is not overly onerous, but you will need a road map one that can evolve over time to keep you on track.

The first place to start is to think about what your life might look like in retirement. Sit down with a pen and paper and write down your retirement goals.

Then think about how much everything will cost. We don’t know what prices will be like in the future, and in recent years inflation has run below the Fed’s benchmark of 2%, but the average inflation rate in the U.S. over the past century was 3.22%. So plan for higher prices in the decades ahead. You’ll also want to factor in your day-to-day expenses, like housing costs, food and health care. Remember, some of the costly expenses you have now, such as a mortgage or childcare costs, will no longer exist, which could result in a decrease in your overall expenses as you near retirement.

Next, add up all the income you might receive in your post-working years. Factor in pension income if you have one, social security payments and any other dollars, such as rental income from a property, that may come your way. Match up revenue and expenses and you’ll get a good idea of what you’ll need to set aside for every year of your retirement.

Also Check: Retirement Communities In Nashville Area

Share post:


More like this