If you want to retire early, you need to start saving as soon as possible. That means making decisions about how you’re going to save and where you’re going to put your retirement savings money. This is where it gets tricky because you’ve got a lot of different options here and, unless you’re a financial expert, you might not know which is best. It’s also sensible to spread your money out a bit to protect it, so you need to have a good handle on all the different places where you can save your retirement money.
The Most Common and Best Places To Put Your Retirement Savings
Employers Retirement Fund
Your first port of call should be the retirement fund offered by your employers if you’re eligible for one. 401K or 403B are the most common ones and they’re so popular because they’ve got some great tax benefits. You won’t have to pay any tax on the money that you put in and it’ll sit in there, growing tax-free until you’re ready to retire. That’s a massive bonus because all of that tax would have eaten into your savings over the years and you’d end up with a lot less than you otherwise would have done if you hadn’t put it in a 401K. The other major benefit is that some employers will put money in when you do, so you can maximize the amount that you’re saving. These 401K company matches is like free money given to you for your retirement.
IRA’s
An IRA has a lot of the same tax benefits as a 401K but they’re not linked to your employer. If you’re not offered a retirement package at work, an IRA is your best bet. Just be aware that the eligibility rules are slightly different to 401K’s so you might not qualify. You can also utilize an IRA even if you participate in an employer-provided 401K if you qualify. Best of all, IRAs come in two flavors. The tax deferred traditional IRA that mimics some of the same benefits of a 401K but also the after tax Roth IRA. For young retirement savers, prepaying tax now for tax-free retirement income later is the better way to go. Even though the yearly contribution limits are far lower than what the 401K allows for, the IRA is a powerful tool for retirement savers.
High Interest Savings Accounts
A high interest savings account is another good option because it helps you to make your savings grow. You’ve also got easier access to the money should you need it in an emergency. Just remember not to start taking it out for frivolous reasons. Often, online savings accounts have better interest rates and lower fees than traditional savings accounts so they’re worth looking into. Check out this list of the best online savings accounts to see what deals you can find. You do need to be aware of inflation if you’re putting your retirement money in a savings account though. If inflation is higher than your interest rate, your money will be losing value in real terms, in which case, you should move it.
Investment Accounts
Savings accounts will help you to build up your savings slowly. But if your retirement fund is looking a bit short, you might need to start putting your money in an investment account. It’s the best way to increase your savings before you retire. Understanding investing basics comes into great importance as utilizing investments is the path to a secure retirement. These investment will play a huge role within 401Ks, IRAs, and outside of them in non-retirement type investment accounts. Look at low-cost investment funds. There are always risks involved with investing so it’s best to seek the help of a financial adviser to make sure that you’re making sensible choices.
By spreading your retirement savings out over these different channels, you can secure your financial future and retire early.