How To Save Money For Retirement
Create your retirement plan
In the United States, 401k plans are specialized investment accounts that help people save for retirement; in Canada, the equivalent is the RRSP, or registered retirement savings plan. Both of these offer tax shelters and other advantages to contributors, but they are just one of the many ways to save money for retirement that are available to you. Knowing how to save money for retirement without relying solely on these instruments can be a boon to the financial health of your golden years.
Create Your Retirement Plan
You should make every effort to maximize your contributions to your 401k plan or your RRSP. In both the United States and Canada, there are limits to your annual contribution allowances; some employers offer bonus plans that promise to match your own contributions (and these may be exempt from maximum contribution restrictions). The primary reason to these restrictions is that 401k plans and RRSPs are exempt from capital gains tax. In fact, they are one of the best places to put your money if you want to know how to avoid capital gains tax.
In addition to these plans, here are some other tips for your retirement plan:
- Use low-risk investments to generate returns on your savings, then funnel those returns into your retirement account.
- Start as early as possible. 401k plans and RRSPs rise in value because of the long time horizon. The more time you have to build interest, the greater your return on investment will be.
- Take advantage of any programs your employer offers that will boost your 401k or RRSP contributions.
- Free up capital from other assets to funnel into your 401k. For example, if you can get a good rate on a home equity loan to free up capital in your house, you can invest this money into your 401k or RRSP, earning good interest (that's tax-free) over a longer period of time, making the money you spent on the loan well worthwhile.
Working with a financial advisor will help you find more ways to save money for retirement. Getting professional input that's tailored to your specific situation is the best way to form a financial plan for your future.