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Best ways to save for retirement

Date posted:  12/7/15 07:45:00 AM

Saving for retirement doesn't always happen as planned. In many instances, individuals fail to calculate how much they'll need to live on, according to the U.S. Department of Labor. 

Saving for retirement requires dedication and smart planning. Follow these tips to ensure you have enough to sustain you once you stop working: 

Determine your retirement needs 
The amount of money you need to save depends on what you plan to do after retirement. If you intend to downsize and have a relatively low-key life after your professional one, you will not need as much money as someone who plans to travel and finance a more luxurious lifestyle.  

Experts indicated you will likely need 70 percent of the salary you make prior to retirement to support yourself, and the average American's retirement usually lasts 20 years. Consider these factors when figuring out how much you need to save. 

Bankrate also emphasized that knowing what you need is critical to saving for retirement. While it isn't common, it is of paramount importance. 

"People save what they can, do their best and figure they'll count their chips later," said Bill Baldwin, president of Pillar Financial Advisers. "But they need to calculate what they need at retirement and how much they'll be able to draw from savings to support their lifestyle."

Set goals and stick to them
Setting goals for retirement will keep you on track. Start small, build up your funds, and always automatically take a certain amount of your pay check and contribute it to your designated retirement account. 

U.S. News & World Report suggested setting up direct deposit. By doing this, you will be less tempted to spend the money that should be added to your retirement account. 

401(k) 
Your employer likely offers a 401(k) which serves as a retirement account. Bankrate emphasized the importance of hitting the maximum amount you are allowed to. 

In addition, you'll want to familiarize yourself with the retirement plan your employer offers. Knowing what to expect will help you better plan for retirement and find additional ways to build your savings. 

Traditional IRA and Roth IRA 
A traditional IRA is a retirement account that provides you with various investment options. According to CNN Money, an IRA grows much faster than a savings account that is taxable because you only pay taxes on the money you withdraw after retirement, allowing dividends and capital gains to compound over the years without taxes impeding its growth. 

With a Roth IRA, the taxes are done differently. 

"With a Roth, you don't get a tax deduction, but you don't pay any tax on the earnings, and the withdrawals are tax-free," says Jon King, an accountant and certified financial planner for Pegasus Financial Solutions. 

Make sacrifices and develop your plans
In some instances it will be difficult to stash away some of your money and save it for later in life. A vacation or new car might be tempting, but plugging those funds into your retirement account will be essential in later years. 

In addition, it may be necessary to take on another job during early retirement to further save for these latter years. It may not be optimal, but if necessary, try to find a job that suits you and your interests. If you enjoy books and reading, consider working at a local book store or the library. If you taught during your professional career, think about tutoring young students. 

Retirement may seem like it's a while away, but saving now will pay off in the long run, so develop your plan and sure you execute it.