How to plan and build a retirement fund - ScillBee

How to plan and build a retirement fund

Isn’t retirement saving plays the role of financial cushion?

Undoubtedly, it will be going to fund your retirement phase. To have a life full of financial peace, comfort, with no financial stress, and all the perks you desire to have in your retirement life. It is crucial as hell.

Every ending is a new beginning, and retirement is also a new journey of life. You may have different retirement dreams like to own a villa in a mountain, some want to take a world tour, some want to do organic farming, own a food truck and cook, and the list could be unending.

Who doesn’t want a blissful retirement life? 

But the fun part is that hardly a few people know what to do and how to do it to get such bliss. 

To enjoy a long, comfortable retirement, save more today. ~ Suze Orman

Savings is the key to make your retirement journey wonderful, but it can’t be possible without financial planning. So before starting savings, make a proper plan first. 

Many experts say investing 15% of household income could be the best allocation for retirement. Here, I will present some significant aspects which one need to understand:

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Step 1: Set a goal, make a plan, and work on it

Before proceeding further, the most crucial aspect is to make a proper full proof plan. If you want to turn all that beautiful retirement desire into reality, you need to plan and work on it now.

To make a plan, you need to figure out what your retirement dreams are, what it will take, how much fund you will require to have anyhow into that phase. The more you explore, the more you realize, and then the more you will have a clear picture in your head. 

Got this! Now work on it.

Step 2: Invest 15% of your household income for retirement

Investing could probably be one of the best options one can suppose for retirement. There are plenty of investment options available. I will show some good options which are more common.

1. 401(k)

This depends on what your job is and where you work. 401(k) is a tax-deferred salary savings plan offered by the employers (not necessarily all offer the same) or the companies as a retirement account. You have to sign up first at any point in your work duration or even in the initial days of work, and fill what percentage of your paycheck you want to save for your retirement. Your employer deposits that sum of money along with the company and saves it for you. 

Example: In a company, an employer offers 401(k) plans to its employee. The employee is getting a paycheck sum of Rs. 50,000. Now, the employee wants to make a wise decision and decide to make 15% i.e., 7,500 as its pre-tax contribution to the plan from its every paycheck. Ultimately, all the contributions (i.e., tax-free) collectively build the employee 401(k) plan for a happy retirement. 

Boons of 401(k):

  • Employer Match/ Matching Funds –

What if you get free funds? It sounds silly, but it’s not!

Let’s say you contribute 15% of your paycheck to make 401(k) to the employers. On the better side, your employer offers 15% of the money to a money match. When you invest 15% of your paycheck into your 401(k), your employer will match your investment. 

Paycheck: Rs. 50,000

401(k): Rs. 7,500 (i.e. 15% of the paycheck)

Employer Match: Rs. 7,500

It shows you have Rs. 15,000 invested in your 401(k). Thus, you have Rs. 42,500 taxable incomes this year. 

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  • Tax breaks

The contributions you made will be tax-free until the time you retire. You contribute to the plan by providing a certain percentage from your salary, where your contributions are not counted as your income. Thus, your tax burden will decrease. Also, the saving for your 401(k) plan will be tax-deferred growth (the fund into the plan will not be taxed until they are withdrawn). It contributes to the growth of money, and it allows your earnings to compound.

  • Capitals Requirement

The amount of money that you can set aside in 401(k) changes every year. For an authentic update, check out this link.

https://www.irs.gov/retirement-plans/cola-increases-for-dollar-limitations-on-benefits-and-contributions 

2. IRA 

Individual Retirement Account, i.e., IRA, is yet another investing tool for retirement savings that also has tax benefits associated. Range of investments into the IRA are ETFs, bonds, mutual funds, stocks, and financial products. Hence, to choose to start your IRA, you need to research the investments associated with this (like what is the fees, how to buy and sell your investments when you know the complete table of fees, etc.).  

  • Role of taxes

If you contribute to the basic or traditional IRA, you will get tax-deductions. Your taxable income will decrease when you put a certain paycheck in the account of your IRA. Although, at the time of retirement, it will be taxed when you withdraw the money. If you withdraw the money before retirement, you are liable for the early-withdrawal penalty of 10%. Also, you need to check the current government information update on income and deposits limits. When you touch the tax-deductible limit, then tax-deduction wouldn’t have been allowed.

  • Contributions

The maximum contribution limit and the income limit changes each year. To check the current limit, refer to this link.

https://www.irs.gov/retirement-plans/cola-increases-for-dollar-limitations-on-benefits-and-contributions 

Roth IRA

The Roth IRA is a bit different yet a part of the IRA. The best part is when you withdraw the money on retirement, you are not liable to pay the income taxes. The contributions you made to your Roth IRA are not tax-deductible, you already pay taxes on the money before you deposit it, so you don’t need to pay taxes further.

B) SEP IRA

SEP, i.e. “Simplified Employee Pension” are the options basically for the self-employed (like small-business owners, self-employed individuals, etc.). The taxation rules of the SEP-IRA are the same as traditional or basic IRA. It consists of a bunch of rules which help in more saving than others.

Step: 3 Remember

“Retirement is not the end of the road; it is the beginning of the open highway.”

  1. Stay calm 
  2. Stay focused
  3. Keep that goal in mind
  4. Earn, save, & invest for Future
  5. Stay consistent
  6. Stay determined
  7. Keep yourself motivated
  8. Now say,

Dear Future, I am ready!

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