September 1, 2024 • 17 mins
Have you ever wondered if it's too late to start saving for retirement? Or perhaps you're curious about the most effective ways to build a retirement fund from ground zero at any age? This episode of Low Income Rich Life promises to equip you with the knowledge and strategies needed to establish and grow your retirement savings, regardless of your current financial situation. We break down various types of retirement accounts, such as traditional IRAs, Roth IRAs, 401(k) plans, SEP IRAs, and Simple IRAs, each with its unique advantages and potential drawbacks. Understanding these options will help you tailor your retirement planning to your individual needs, ensuring a secure financial future.
Join us as we share practical, actionable tips to boost your retirement savings. From automating your contributions and reducing debt to utilizing tax-efficient investment strategies and maximizing employer contributions, we've got you covered. We'll also discuss the advantages of Health Savings Accounts (HSAs) for tax-efficient saving and planning for healthcare costs in retirement. Whether you're in your 20s, 30s, 40s, 50s, or closer to retirement, this episode offers valuable insights to help you take control of your financial future and enjoy your golden years with peace of mind. Don't miss this comprehensive guide to building a retirement fund from scratch, tailored for anyone at any stage of life!
Read the full blog post here:
How to Build a Retirement Fund from Scratch at Any Age
Read our post about HSAs here:
Everything You Need to Know About Health Savings Accounts (HSAs)
Send us a Text Message with your questions, comments or ideas for future episodes.
Don't forget to visit our website at https://lowincomerichlife.com for additional resources, show notes and links to everything we discussed today.
You can also join the conversation in our Facebook group at www.facebook.com/groups/lowincomerichlife for more updates and retirement tips.
Subscribe to our newsletter at https://lowincomerichlife.com/subscribe for regular updates and exclusive content.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Today we're diving into a topic that I know is on
many of your minds how to builda retirement fund from scratch
at any age.
Now, I know that the idea ofstarting a retirement fund can
seem overwhelming, especially ifyou're starting later in life
or haven't saved as much asyou'd hoped.
But here's the good news it'snever too late to start, and
there are concrete steps you cantake to build a solid
(00:22):
retirement fund, no matter yourage or financial situation.
We recently published a blogpost on this topic, and today I
want to provide a comprehensiveoverview of that post, add a bit
more context and share somepersonal insights to help you
feel confident and empowered totake action.
Whether you're in your 20s, 30s, 40s, 50s or even closer to
(00:43):
retirement age, this episode isfor you.
So grab a cup ofs.
30s, 40s, 50s or even closer toretirement age, this episode is
for you.
So grab a cup of coffee, sitback and let's get started on
building that retirement fundfrom scratch.
Welcome to Low Income Rich Life,the podcast that helps you
prepare for a secure andfulfilling retirement, even on a
limited income.
(01:03):
I'm your host, kevin Bass.
Each week, we'll explorepractical tips and strategies
for getting out of debt,lowering expenses, living a
simpler life and finding truecontentment.
Whether you're nearingretirement or just starting to
plan, join me as we navigate thejourney to a brighter future.
Let's discover together how tomake the most of our golden
years without breaking the bank.
(01:26):
Let's start by talking about thedifferent types of retirement
accounts available to you.
Understanding these options iscrucial, because each account
type offers unique benefits andrules, and choosing the right
one for your situation can makea big difference in how much you
are able to save.
First up, we have thetraditional IRA or Individual
Retirement Account.
This is a great option for manypeople because it allows you to
(01:48):
contribute pre-tax income whichcan reduce your taxable income
for the whole year.
The money in your traditionalIRA grows tax-deferred, which
means you won't pay taxes on ituntil you withdraw it in
retirement.
This type of account is idealif you think you'll be in a
lower tax bracket when youretire.
Next there's the Roth IRA.
(02:09):
The Roth IRA is a bit different, because you contribute
after-tax dollars.
The benefit here is that yourmoney grows tax-free and
qualified withdrawals inretirement are also tax-free.
This makes a Roth IRA a greatchoice if you expect to be in a
higher tax bracket when youretire, or if you want the
flexibility to withdraw yourcontributions at any time
(02:30):
without penalties, then we have401k plans.
These are employer-sponsoredretirement plans that allow you
to contribute a portion of yoursalary, pre-tax.
One of the best things about a401k is the potential for
employer matching.
Essentially, your employermight match a portion of the
money you contribute, which islike getting free money for your
retirement.
If your employer offers a match, it's a good idea to contribute
(02:53):
at least enough to get the fullmatch.
For those of you who areself-employed or own a small
business, there are options likeSEP IRAs and Simple IRAs.
These accounts have highercontribution limits compared to
standard IRAs, which can beparticularly advantageous if you
want to save more aggressivelyfor retirement.
Each of these accounts has itspros and cons, and the right one
(03:16):
for you depends on yourspecific situation.
Later in the episode, we'lldive into the advantages and
disadvantages of each to helpyou make the best decision for
yourself.
Now that we've covered thebasic types of retirement
accounts, let's talk about theadvantages and disadvantages of
each.
Understanding these pros andcons can help you make an
informed choice about where toput your hard-earned money.
(03:38):
Let's start with the traditionalIRA.
One of the biggest benefits isthe immediate tax deduction on
your contributions.
This reduces your taxableincome for the year, which can
lower your tax bill.
Plus, you get tax-deferredgrowth on your investments.
The downside is that when youwithdraw your money in
retirement, it's taxed asordinary income.
(03:58):
Additionally, there arerequired minimum distributions,
or RMDs, which means you muststart taking withdrawals at age
72, whether you need the moneyor not.
Then there's the Roth IRA.
The biggest benefit of a RothIRA is tax-free growth and
tax-free withdrawals inretirement.
There are also no RMDs, whichgive you more flexibility with
(04:19):
your money.
Another advantage is that youcan withdraw your contributions,
but not the earnings, at anytime without penalties.
The main downside to a Roth IRAis that contributions are made
with after-tax dollars, sothere's no immediate tax benefit
.
Also, there are income limitsthat might prevent high earners
from contributing directly to aRoth IRA.
(04:41):
401k plans come next.
These plans allow for highercontribution limits than IRAs
and you can benefit fromemployer matching, which is
essentially free money.
Your contributions are also taxdeferred, which reduces your
taxable income.
As far as disadvantages go, theinvestment options can be
limited depending on youremployer's plan and, like the
(05:01):
traditional IRA, 401kwithdrawals in retirement are
taxed as ordinary income.
There are also RMDs starting atage 72.
Finally, let's talk about SEPsand simple IRAs.
These plans are great forself-employed individuals
because they allow for highercontributions.
They're also relatively simpleto set up and maintain.
(05:22):
As far as disadvantages, with aSEP IRA, contributions are not
allowed after age 70 and a half,and with a simple IRA, there
are mandatory employercontributions, which might not
be ideal for every business.
Each account type has itsunique benefits and drawbacks,
and it's important to choose theone that aligns best with your
retirement goals and yourfinancial situation.
(05:50):
Hey there, listeners.
Are you looking for asupportive community where you
can learn more about preparingfor retirement on a low income?
If so, I've got just the placefor you.
I'd love for you to join ourFacebook group, low Income Rich
Life.
It's a space where we sharepractical tips, resources and
experiences to help each othernavigate the challenges of
retirement planning on a budget.
(06:11):
Whether you're just starting tothink about retirement or
you're well on your way, ourgroup is filled with folks just
like you, all working towardsthe same goal a secure and
fulfilling retirement withoutbreaking the bank.
To join, simply head over tolowincomerichlifecom slash.
Join the group that'slowincomerichlifecom slash.
(06:31):
Join the group.
I can't wait to see you thereand hear your story.
So, now that we have a betterunderstanding of the different
types of retirement accounts,let's go over a step-by-step
guide to building a retirementfund from scratch.
This is especially important ifyou're just starting out or if
you've had to start over due tolife circumstances.
(06:53):
Step one is going to be assessyour current financial situation
.
This means taking a close lookat your income, expenses, your
debts and any existing savings.
Knowing where you standfinancially is the first step in
creating a realistic retirementplan.
Make a detailed budget thattracks all your income and
expenses and identify areaswhere you can cut back or
(07:15):
allocate more money towardssavings.
Step two is to set clearretirement goals.
Determine how much you need tosave for retirement.
Think about factors such asyour desired retirement age, the
lifestyle you want to maintain,expected health care costs,
inflation and how long you mightlive.
There are many onlinecalculators available that can
(07:35):
help you get a rough estimate ofhow much you need to save.
Break down this goal intosmaller, more manageable
milestones, like saving acertain amount by age 40, 50,
and so on.
Step three is choose the rightretirement accounts Based on
what we discussed earlier.
Select the retirement accountsthat best fit your goals and
situation.
For many people, a mix of aRoth IRA and a 401k provides a
(07:58):
good balance of tax benefits.
If you're self-employed, a SEPor simple IRA might be the way
to go.
Step four start saving earlyand consistently.
The earlier you start saving,the better, thanks to the power
of compound interest.
But even if you're startinglater, don't get discouraged.
The key is consistency.
Set up automatic contributionsto your retirement accounts to
(08:20):
make saving a habit.
Even small amounts can growsignificantly over time.
Step five is maximize employercontributions.
If you have a 401k with youremployer matching, contribute at
least enough to get the fullmatch.
This is essentially free moneythat can boost your retirement
savings.
For example, if your employermatches 50% of your
contributions up to 5% of yoursalary, make sure to contribute
(08:45):
at least 5% to take fulladvantage of this benefit.
Step 6.
Diversify your investments.
Make sure to diversify yourinvestments across different
asset classes like stocks, bondsand real estate.
Diversification helps managerisk and improve potential
returns.
Diversification helps managerisk and improve potential
returns.
If you're not sure how todiversify, consider investing in
(09:09):
low-cost index funds or targetdate funds that automatically
adjust the asset allocation asyou get closer to retirement.
And lastly, step seven isreassess and adjust your plan
regularly.
Life changes, and so shouldyour retirement plan.
Make sure to review your planregularly and make adjustments
as needed to stay on track withyour goals.
Consider consulting with afinancial advisor annually to
(09:29):
review your progress and makeadjustments as needed.
By following these steps,you'll be well on your way to
building a solid retirement fundfrom scratch, no matter your
starting point.
Now that we've gone over thesteps to start building your
retirement fund, let's talkabout some tips for maximizing
your retirement savings.
Whether you're just startingout or looking to boost your
existing savings, thesestrategies can help you make the
(09:51):
most of your efforts.
Tip number one is takeadvantage of catch-up
contributions.
If you're 50 or older, you'reeligible to make catch-up
contributions to your 401k andIRA accounts.
This can significantly increasethe amount you're able to save
each year.
For example, in 2024, thestandard contribution limit for
a 401k is $22,500.
(10:12):
But if you're 50 or older, youcan contribute an additional
$7,500, bringing your total to$30,000.
Similarly, for IRAs, thecatch-up contribution is an
extra $1,000 on top of thestandard $6,500 limit.
These extra contributions canmake a big difference,
especially if you're startingyour savings later in life.
Tip number two is automate yoursavings.
(10:34):
One of the best ways to ensureyou're consistently saving for
retirement is to automate yourcontributions.
Set up automatic transfers fromyour checking account to your
retirement accounts.
This way, you won't have tothink about it each month and
you'll be less tempted to spendthe money elsewhere.
Treat your retirementcontributions like a regular
bill that has to be paid eachmonth.
(10:55):
Even better, if your employerallows paycheck withdrawals,
then that's even the best way toset up automation.
Tip 3.
Reduce debt and lower expenses.
Reducing your debt load andlowering your monthly expenses
can free up more money tocontribute to your retirement
fund.
Start by focusing on paying offhigh-interest debt like credit
card balances, which can eataway at your savings.
(11:16):
Once your high-interest debt isunder control, look for other
ways to lower your expenses,such as refinancing a mortgage,
cutting back on dining out orfinding more affordable
entertainment options.
Tip 4 is to increase yoursavings gradually.
If you can't afford to save alot initially, don't worry.
Start small and increase yoursavings rate gradually over time
(11:37):
.
For instance, you can increaseyour contribution by 1% each
year or every time you get araise.
These small incrementalincreases will add up over time
and help you reach yourretirement goals without feeling
like you're making a hugesacrifice all at once.
That brings us to tip 5, whichis utilizing tax-efficient
investment strategies.
Consider investing intax-efficient funds and
(11:59):
understand the tax implicationsof your investments.
For example, holdingdividend-paying stocks or
high-yield bonds in atax-diverted account like a
traditional IRA or 401k can helpreduce your current tax burden
while maximizing your investmentgrowth.
This approach can beparticularly beneficial if
you're in a higher tax bracketnow but expect to be in a lower
bracket in retirement.
(12:20):
Tip six is to rebalance yourportfolio regularly.
Over time, your investments mayshift away from your target
asset allocation due to marketperformance.
Rebalancing your portfolio atleast once a year can help
maintain the desired level ofrisk and ensure that your
investments remain aligned withyour retirement goals.
Consider consulting a financialadvisor to determine the best
(12:41):
strategy for rebalancing yourspecific portfolio.
By incorporating these tipsinto your retirement savings
strategy, you can make the mostout of every dollar you save and
help ensure a more comfortableretirement.
Okay, for those of you who arestarting your retirement savings
journey later in life don't bediscouraged.
I'm right here with you.
There are still plenty of stepsyou can take to build a solid
(13:02):
retirement fund, and here aresome specific considerations for
us late starters.
Focus on catch-up contributions.
If you're over 50, catch-upcontributions to your retirement
accounts can be a game changer,as we mentioned earlier, these
extra contributions allow you tosave more each year and they're
a great way to accelerate yoursavings in the years leading up
(13:23):
to retirement.
You can also maximize employercontributions.
If you're still working andyour employer offers a 401k with
matching contributions, makesure you're contributing enough
to get the full match.
This is essentially free moneythat can help boost your
retirement savings significantly.
Don't leave this benefit on thetable.
You could consider workinglonger.
While it might not beeveryone's first choice, working
(13:45):
a few extra years can providesignificant financial benefits.
Not only does it give you moretime to save, but it also means
you can delay drawing from yourretirement accounts, allowing
them more time to grow.
Additionally, working longercan increase your Social
Security benefits, especially ifyou wait until full retirement
age or later to start collecting, downsize or reduce expenses.
(14:06):
Consider downsizing your homeor moving into a lower cost area
to reduce your living expenses.
This can free up more money tocontribute to your retirement
savings and help make your nestegg last longer.
Also, you can look for ways tocut back on discretionary
spending, such as dining out,travel or subscription services.
Lastly, if you're unsure aboutwhere to start or how to catch
(14:27):
up, consider speaking with afinancial advisor.
They can help you create apersonalized plan based on your
unique situation and retirementgoals, ensuring you're on the
right path to achievingfinancial security.
Remember, it's never too lateto start saving for retirement.
Every dollar you save andinvest now can help provide more
financial security down theroad.
Before we wrap up today, I wantto briefly mention the role that
(14:49):
health savings accounts, orHSAs, can play in your
retirement planning.
If you're enrolled in ahigh-deductible health plan, an
HSA can be a fantastic tool, notjust for current medical
expenses, but also forretirement savings.
First of all, there's a tripletax benefit to HSAs
Contributions are tax-deductible, the funds grow tax-free and
withdrawals for qualifiedmedical expenses are also
(15:12):
tax-free.
This makes HSAs one of the mosttax-efficient savings vehicles
available.
In retirement, health carecosts can be a significant
expense and an HSA allows you tosave specifically for these
costs and if you don't need thefunds immediately, you can let
the money grow tax-free Forthose who are healthy.
Now paying for medical expensesout of pocket and letting the
(15:34):
HSA funds grow can maximizetheir potential.
After age 65, you can use HSAfunds for any purpose without
penalty, though non-medicalwithdrawals are subject to
ordinary income tax.
This feature makes HSAs similarto a traditional IRA or 401k,
but with the added flexibilityof tax-free medical withdrawals.
(15:54):
For more detailed informationon using HSAs as part of your
retirement strategy, be sure tocheck out our blog post that's
dedicated entirely to HSAs.
I'll leave a link to that postin the show notes.
Incorporating HSAs into yourretirement plan can provide an
additional layer of security,especially when planning for
health care expenses inretirement.
(16:14):
So, to sum it all up, buildinga retirement fund from scratch
is entirely possible at any age.
It requires understanding youroptions, setting clear goals,
making consistent contributionsand maximizing every opportunity
to save and invest wisely.
If you found today's episodehelpful, be sure to check out
our detailed blog post onbuilding a retirement fund from
(16:36):
scratch for more information andto be able to dive deeper into
our resources.
You can find that post atlowincomerichlifecom.
I'd love to hear your thoughtsor questions on this topic, so
feel free to reach out to me onsocial media or join our
Facebook group.
You can find us at facebookcomslash groups slash low income
(16:58):
rich life.
That's where we discuss allthings retirement and personal
finance.
Thank you for joining us onthis episode of low income rich
life.
I hope you found today's tipsand strategies helpful.
If you enjoyed the show, pleasesubscribe, rate and leave us a
review on your favorite podcastplatform.
Your feedback helps us reachmore listeners and improve the
(17:19):
content we bring to you.
Don't forget to visit ourwebsite at lowincomerichlifecom
for additional resources, shownotes and links to everything we
discussed today.
You can also join me on ourFacebook page for more updates
and retirement tips.
Remember, a truly rich life isnot about how you spend your
money, but how you spend yourtime.
(17:40):
I'm Kevin Bass, wishing you aprosperous and joyful retirement
journey.
Stay well and stay inspired.
Today we're diving into a topic that I know is on
many of your minds how to builda retirement fund from scratch
at any age.
Now, I know that the idea ofstarting a retirement fund can
seem overwhelming, especially ifyou're starting later in life
or haven't saved as much asyou'd hoped.
But here's the good news it'snever too late to start, and
there are concrete steps you cantake to build a solid
(00:22):
retirement fund, no matter yourage or financial situation.
We recently published a blogpost on this topic, and today I
want to provide a comprehensiveoverview of that post, add a bit
more context and share somepersonal insights to help you
feel confident and empowered totake action.
Whether you're in your 20s, 30s, 40s, 50s or even closer to
(00:43):
retirement age, this episode isfor you.
So grab a cup ofs.
30s, 40s, 50s or even closer toretirement age, this episode is
for you.
So grab a cup of coffee, sitback and let's get started on
building that retirement fundfrom scratch.
Welcome to Low Income Rich Life,the podcast that helps you
prepare for a secure andfulfilling retirement, even on a
limited income.
(01:03):
I'm your host, kevin Bass.
Each week, we'll explorepractical tips and strategies
for getting out of debt,lowering expenses, living a
simpler life and finding truecontentment.
Whether you're nearingretirement or just starting to
plan, join me as we navigate thejourney to a brighter future.
Let's discover together how tomake the most of our golden
years without breaking the bank.
(01:26):
Let's start by talking about thedifferent types of retirement
accounts available to you.
Understanding these options iscrucial, because each account
type offers unique benefits andrules, and choosing the right
one for your situation can makea big difference in how much you
are able to save.
First up, we have thetraditional IRA or Individual
Retirement Account.
This is a great option for manypeople because it allows you to
(01:48):
contribute pre-tax income whichcan reduce your taxable income
for the whole year.
The money in your traditionalIRA grows tax-deferred, which
means you won't pay taxes on ituntil you withdraw it in
retirement.
This type of account is idealif you think you'll be in a
lower tax bracket when youretire.
Next there's the Roth IRA.
(02:09):
The Roth IRA is a bit different, because you contribute
after-tax dollars.
The benefit here is that yourmoney grows tax-free and
qualified withdrawals inretirement are also tax-free.
This makes a Roth IRA a greatchoice if you expect to be in a
higher tax bracket when youretire, or if you want the
flexibility to withdraw yourcontributions at any time
(02:30):
without penalties, then we have401k plans.
These are employer-sponsoredretirement plans that allow you
to contribute a portion of yoursalary, pre-tax.
One of the best things about a401k is the potential for
employer matching.
Essentially, your employermight match a portion of the
money you contribute, which islike getting free money for your
retirement.
If your employer offers a match, it's a good idea to contribute
(02:53):
at least enough to get the fullmatch.
For those of you who areself-employed or own a small
business, there are options likeSEP IRAs and Simple IRAs.
These accounts have highercontribution limits compared to
standard IRAs, which can beparticularly advantageous if you
want to save more aggressivelyfor retirement.
Each of these accounts has itspros and cons, and the right one
(03:16):
for you depends on yourspecific situation.
Later in the episode, we'lldive into the advantages and
disadvantages of each to helpyou make the best decision for
yourself.
Now that we've covered thebasic types of retirement
accounts, let's talk about theadvantages and disadvantages of
each.
Understanding these pros andcons can help you make an
informed choice about where toput your hard-earned money.
(03:38):
Let's start with the traditionalIRA.
One of the biggest benefits isthe immediate tax deduction on
your contributions.
This reduces your taxableincome for the year, which can
lower your tax bill.
Plus, you get tax-deferredgrowth on your investments.
The downside is that when youwithdraw your money in
retirement, it's taxed asordinary income.
(03:58):
Additionally, there arerequired minimum distributions,
or RMDs, which means you muststart taking withdrawals at age
72, whether you need the moneyor not.
Then there's the Roth IRA.
The biggest benefit of a RothIRA is tax-free growth and
tax-free withdrawals inretirement.
There are also no RMDs, whichgive you more flexibility with
(04:19):
your money.
Another advantage is that youcan withdraw your contributions,
but not the earnings, at anytime without penalties.
The main downside to a Roth IRAis that contributions are made
with after-tax dollars, sothere's no immediate tax benefit
.
Also, there are income limitsthat might prevent high earners
from contributing directly to aRoth IRA.
(04:41):
401k plans come next.
These plans allow for highercontribution limits than IRAs
and you can benefit fromemployer matching, which is
essentially free money.
Your contributions are also taxdeferred, which reduces your
taxable income.
As far as disadvantages go, theinvestment options can be
limited depending on youremployer's plan and, like the
(05:01):
traditional IRA, 401kwithdrawals in retirement are
taxed as ordinary income.
There are also RMDs starting atage 72.
Finally, let's talk about SEPsand simple IRAs.
These plans are great forself-employed individuals
because they allow for highercontributions.
They're also relatively simpleto set up and maintain.
(05:22):
As far as disadvantages, with aSEP IRA, contributions are not
allowed after age 70 and a half,and with a simple IRA, there
are mandatory employercontributions, which might not
be ideal for every business.
Each account type has itsunique benefits and drawbacks,
and it's important to choose theone that aligns best with your
retirement goals and yourfinancial situation.
(05:50):
Hey there, listeners.
Are you looking for asupportive community where you
can learn more about preparingfor retirement on a low income?
If so, I've got just the placefor you.
I'd love for you to join ourFacebook group, low Income Rich
Life.
It's a space where we sharepractical tips, resources and
experiences to help each othernavigate the challenges of
retirement planning on a budget.
(06:11):
Whether you're just starting tothink about retirement or
you're well on your way, ourgroup is filled with folks just
like you, all working towardsthe same goal a secure and
fulfilling retirement withoutbreaking the bank.
To join, simply head over tolowincomerichlifecom slash.
Join the group that'slowincomerichlifecom slash.
(06:31):
Join the group.
I can't wait to see you thereand hear your story.
So, now that we have a betterunderstanding of the different
types of retirement accounts,let's go over a step-by-step
guide to building a retirementfund from scratch.
This is especially important ifyou're just starting out or if
you've had to start over due tolife circumstances.
(06:53):
Step one is going to be assessyour current financial situation
.
This means taking a close lookat your income, expenses, your
debts and any existing savings.
Knowing where you standfinancially is the first step in
creating a realistic retirementplan.
Make a detailed budget thattracks all your income and
expenses and identify areaswhere you can cut back or
(07:15):
allocate more money towardssavings.
Step two is to set clearretirement goals.
Determine how much you need tosave for retirement.
Think about factors such asyour desired retirement age, the
lifestyle you want to maintain,expected health care costs,
inflation and how long you mightlive.
There are many onlinecalculators available that can
(07:35):
help you get a rough estimate ofhow much you need to save.
Break down this goal intosmaller, more manageable
milestones, like saving acertain amount by age 40, 50,
and so on.
Step three is choose the rightretirement accounts Based on
what we discussed earlier.
Select the retirement accountsthat best fit your goals and
situation.
For many people, a mix of aRoth IRA and a 401k provides a
(07:58):
good balance of tax benefits.
If you're self-employed, a SEPor simple IRA might be the way
to go.
Step four start saving earlyand consistently.
The earlier you start saving,the better, thanks to the power
of compound interest.
But even if you're startinglater, don't get discouraged.
The key is consistency.
Set up automatic contributionsto your retirement accounts to
(08:20):
make saving a habit.
Even small amounts can growsignificantly over time.
Step five is maximize employercontributions.
If you have a 401k with youremployer matching, contribute at
least enough to get the fullmatch.
This is essentially free moneythat can boost your retirement
savings.
For example, if your employermatches 50% of your
contributions up to 5% of yoursalary, make sure to contribute
(08:45):
at least 5% to take fulladvantage of this benefit.
Step 6.
Diversify your investments.
Make sure to diversify yourinvestments across different
asset classes like stocks, bondsand real estate.
Diversification helps managerisk and improve potential
returns.
Diversification helps managerisk and improve potential
returns.
If you're not sure how todiversify, consider investing in
(09:09):
low-cost index funds or targetdate funds that automatically
adjust the asset allocation asyou get closer to retirement.
And lastly, step seven isreassess and adjust your plan
regularly.
Life changes, and so shouldyour retirement plan.
Make sure to review your planregularly and make adjustments
as needed to stay on track withyour goals.
Consider consulting with afinancial advisor annually to
(09:29):
review your progress and makeadjustments as needed.
By following these steps,you'll be well on your way to
building a solid retirement fundfrom scratch, no matter your
starting point.
Now that we've gone over thesteps to start building your
retirement fund, let's talkabout some tips for maximizing
your retirement savings.
Whether you're just startingout or looking to boost your
existing savings, thesestrategies can help you make the
(09:51):
most of your efforts.
Tip number one is takeadvantage of catch-up
contributions.
If you're 50 or older, you'reeligible to make catch-up
contributions to your 401k andIRA accounts.
This can significantly increasethe amount you're able to save
each year.
For example, in 2024, thestandard contribution limit for
a 401k is $22,500.
(10:12):
But if you're 50 or older, youcan contribute an additional
$7,500, bringing your total to$30,000.
Similarly, for IRAs, thecatch-up contribution is an
extra $1,000 on top of thestandard $6,500 limit.
These extra contributions canmake a big difference,
especially if you're startingyour savings later in life.
Tip number two is automate yoursavings.
(10:34):
One of the best ways to ensureyou're consistently saving for
retirement is to automate yourcontributions.
Set up automatic transfers fromyour checking account to your
retirement accounts.
This way, you won't have tothink about it each month and
you'll be less tempted to spendthe money elsewhere.
Treat your retirementcontributions like a regular
bill that has to be paid eachmonth.
(10:55):
Even better, if your employerallows paycheck withdrawals,
then that's even the best way toset up automation.
Tip 3.
Reduce debt and lower expenses.
Reducing your debt load andlowering your monthly expenses
can free up more money tocontribute to your retirement
fund.
Start by focusing on paying offhigh-interest debt like credit
card balances, which can eataway at your savings.
(11:16):
Once your high-interest debt isunder control, look for other
ways to lower your expenses,such as refinancing a mortgage,
cutting back on dining out orfinding more affordable
entertainment options.
Tip 4 is to increase yoursavings gradually.
If you can't afford to save alot initially, don't worry.
Start small and increase yoursavings rate gradually over time
(11:37):
.
For instance, you can increaseyour contribution by 1% each
year or every time you get araise.
These small incrementalincreases will add up over time
and help you reach yourretirement goals without feeling
like you're making a hugesacrifice all at once.
That brings us to tip 5, whichis utilizing tax-efficient
investment strategies.
Consider investing intax-efficient funds and
(11:59):
understand the tax implicationsof your investments.
For example, holdingdividend-paying stocks or
high-yield bonds in atax-diverted account like a
traditional IRA or 401k can helpreduce your current tax burden
while maximizing your investmentgrowth.
This approach can beparticularly beneficial if
you're in a higher tax bracketnow but expect to be in a lower
bracket in retirement.
(12:20):
Tip six is to rebalance yourportfolio regularly.
Over time, your investments mayshift away from your target
asset allocation due to marketperformance.
Rebalancing your portfolio atleast once a year can help
maintain the desired level ofrisk and ensure that your
investments remain aligned withyour retirement goals.
Consider consulting a financialadvisor to determine the best
(12:41):
strategy for rebalancing yourspecific portfolio.
By incorporating these tipsinto your retirement savings
strategy, you can make the mostout of every dollar you save and
help ensure a more comfortableretirement.
Okay, for those of you who arestarting your retirement savings
journey later in life don't bediscouraged.
I'm right here with you.
There are still plenty of stepsyou can take to build a solid
(13:02):
retirement fund, and here aresome specific considerations for
us late starters.
Focus on catch-up contributions.
If you're over 50, catch-upcontributions to your retirement
accounts can be a game changer,as we mentioned earlier, these
extra contributions allow you tosave more each year and they're
a great way to accelerate yoursavings in the years leading up
(13:23):
to retirement.
You can also maximize employercontributions.
If you're still working andyour employer offers a 401k with
matching contributions, makesure you're contributing enough
to get the full match.
This is essentially free moneythat can help boost your
retirement savings significantly.
Don't leave this benefit on thetable.
You could consider workinglonger.
While it might not beeveryone's first choice, working
(13:45):
a few extra years can providesignificant financial benefits.
Not only does it give you moretime to save, but it also means
you can delay drawing from yourretirement accounts, allowing
them more time to grow.
Additionally, working longercan increase your Social
Security benefits, especially ifyou wait until full retirement
age or later to start collecting, downsize or reduce expenses.
(14:06):
Consider downsizing your homeor moving into a lower cost area
to reduce your living expenses.
This can free up more money tocontribute to your retirement
savings and help make your nestegg last longer.
Also, you can look for ways tocut back on discretionary
spending, such as dining out,travel or subscription services.
Lastly, if you're unsure aboutwhere to start or how to catch
(14:27):
up, consider speaking with afinancial advisor.
They can help you create apersonalized plan based on your
unique situation and retirementgoals, ensuring you're on the
right path to achievingfinancial security.
Remember, it's never too lateto start saving for retirement.
Every dollar you save andinvest now can help provide more
financial security down theroad.
Before we wrap up today, I wantto briefly mention the role that
(14:49):
health savings accounts, orHSAs, can play in your
retirement planning.
If you're enrolled in ahigh-deductible health plan, an
HSA can be a fantastic tool, notjust for current medical
expenses, but also forretirement savings.
First of all, there's a tripletax benefit to HSAs
Contributions are tax-deductible, the funds grow tax-free and
withdrawals for qualifiedmedical expenses are also
(15:12):
tax-free.
This makes HSAs one of the mosttax-efficient savings vehicles
available.
In retirement, health carecosts can be a significant
expense and an HSA allows you tosave specifically for these
costs and if you don't need thefunds immediately, you can let
the money grow tax-free Forthose who are healthy.
Now paying for medical expensesout of pocket and letting the
(15:34):
HSA funds grow can maximizetheir potential.
After age 65, you can use HSAfunds for any purpose without
penalty, though non-medicalwithdrawals are subject to
ordinary income tax.
This feature makes HSAs similarto a traditional IRA or 401k,
but with the added flexibilityof tax-free medical withdrawals.
(15:54):
For more detailed informationon using HSAs as part of your
retirement strategy, be sure tocheck out our blog post that's
dedicated entirely to HSAs.
I'll leave a link to that postin the show notes.
Incorporating HSAs into yourretirement plan can provide an
additional layer of security,especially when planning for
health care expenses inretirement.
(16:14):
So, to sum it all up, buildinga retirement fund from scratch
is entirely possible at any age.
It requires understanding youroptions, setting clear goals,
making consistent contributionsand maximizing every opportunity
to save and invest wisely.
If you found today's episodehelpful, be sure to check out
our detailed blog post onbuilding a retirement fund from
(16:36):
scratch for more information andto be able to dive deeper into
our resources.
You can find that post atlowincomerichlifecom.
I'd love to hear your thoughtsor questions on this topic, so
feel free to reach out to me onsocial media or join our
Facebook group.
You can find us at facebookcomslash groups slash low income
(16:58):
rich life.
That's where we discuss allthings retirement and personal
finance.
Thank you for joining us onthis episode of low income rich
life.
I hope you found today's tipsand strategies helpful.
If you enjoyed the show, pleasesubscribe, rate and leave us a
review on your favorite podcastplatform.
Your feedback helps us reachmore listeners and improve the
(17:19):
content we bring to you.
Don't forget to visit ourwebsite at lowincomerichlifecom
for additional resources, shownotes and links to everything we
discussed today.
You can also join me on ourFacebook page for more updates
and retirement tips.
Remember, a truly rich life isnot about how you spend your
money, but how you spend yourtime.
(17:40):
I'm Kevin Bass, wishing you aprosperous and joyful retirement
journey.
Stay well and stay inspired.
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