Saving for retirement is probably a great way to start planning for retirement, but you’ll also need to invest your money so that when you’re ready to retire, your retirement savings would’ve multiplied and you’d have more than enough for retirement.
But you don’t quite know how to invest for retirement. This article will tell you how to invest for retirement. These are a few steps on how to invest for retirement:

1. How much do need for retirement?

Knowing how much you need to retire is the first step to knowing how to invest for retirement. The best way to calculate that is by understanding what your lifestyle currently is and how much you’re willing to forgo just so that you can have a retirement with no worries.

To know how much you will need for retirement. There are a few factors to consider:

• Expected expenses: most retirees would probably be spending less than they did while they were working, expenses such as mortgage. This will save them lots of money to enjoy retirement, even though their healthcare cost may increase due to old age. But make sure you calculated how much you expect to spend during your retirement. You can hire a financial advisor to help you with it.
• Inflation: inflation is also another factor to consider when calculating how much you need for retirement. The cost of a particular item now, may not be the same in 20-240 years, it would’ve increased. You may have to struggle with this in future, but when you plan towards it, it might not be that much of a problem.
• Longevity: you also have to consider how long you intend to live. The longer you plan, the more you’d need to save. If you want to make it to your 90’s, then your retirement account has to be extra-large. Although our death is never certain, it is just smart to calculate when you’d live up.

Although this isn’t for everyone, as different scenarios occur for different people, it is advisable to see a financial advisor and articulate your retirement plan as soon as possible. You only retire once; you should make it right.

2. How much should you save towards retirement?

Now that you’ve figured out how much you need for retirement, you need to know how much you should save to reach that goal. Note that, the ability for you to save effectively towards your retirement goal is based on the kind of lifestyle you live right now and how much you earn monthly.

To estimate how much you need to save, first, you have to consider all your sources of expected retirement income. For instance, if your expected expenses for your annual retirement is $50,000 and your social security income is $20,000 then, you would have to save the remaining $30,000.

The 4% rule, is something you might want to adopt because it states that if you withdraw 4% of your retirement income every year, you might have more than enough to last you your entire retirement. This rule can also help you calculate how much you need to save towards by multiplying the amount you expect to spend in a year by 25. For instance, using the figures above, $30,000 multiplied by 25 would give you $750,000. That means you need to save $750,000 in total for retirement.

Another way to know how much to save for retirement is by using a retirement calculator. This calculator is quick and easy and shows you an estimated amount of how much you need to save. It also puts into consideration factors like inflation, salary increase, your returns before and in retirement.

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3. How much are you willing to invest for retirement?

Once you have already figured out how much you’re willing to save for retirement, you have to figure out how much you want to invest for retirement.

You can opt for your company’s retirement plan, thereby allocating 10% of your annual salary to your retirement. Although, your company’s retirement account is a pre-taxed account which means 10% of your income before taxes.

You can also take advantage of company matching. This is basically free money given by your company as an incentive for investing with them.

For instance, if you earn $50,000 per year, then decide to invest 6% ($3000) of your salary with your company, your company matches 50% of your contribution. That is, they will pay you back half of what you have contributed ($1,500).

4. How to invest for retirement

There are various investments you can partake in for retirement. They are:

• 401(k) account: A 401(k) account is a retirement account provided by many companies for their employees and often operated by large financial institutions such as Fidelity Investments or Vanguard. There are two types of 401(k) accounts. They are Traditional 401(k) and Roth 401(k). Traditional 401(k) is pre-tax money that reduces your taxable income for the year, hence, when you’re ready to withdraw it, your taxes would be removed. While Roth 401(k) is post-tax money that doesn’t reduce your taxable income for the year, hence, you are tax-free when you want to withdraw it for retirement.
• IRA: this also known as Individual Retirement Account. This can be opened through any good brokerage account. There are two types, just like the 401(k), the traditional IRA and the Roth IRA.
• Buy rental property: Real estate has always been a good form of investment because of its consistent income irrespective of the market’s performance. You can either earn your income from renting out your properties or by acquiring property and letting its value increase over time. But if you cannot do any, try buying shares of a real estate investment trust (REIT). They are groups of real estate properties that have paid higher dividend than stocks or even bonds.
• Asset allocation: this is allocating how much money you put in stocks, bonds and cash. This helps you diversify your income and makes it easier to invest. You can choose what percentage of your portfolio balance goes to stocks and bonds funds. Rowe Price, an investment firm suggests a simple allocation based on your age.

20s & 30s: 90% to 100% stocks, zero to 10% bonds

40s: 80% to 100% stocks, zero to 20% bonds

50s: 65% to 85% stocks, 15% to 35% bonds

60s: 45% to 65% stocks, 30% to 50% bonds, zero to 10% cash/cash-equivalents

70+: 30% to 50% stocks, 40% to 60% bonds, zero to 20% cash/cash-equivalents

Robo-Advisor or target-date funds: do you need to invest, but you cannot keep up with your assets. Robo-advisor and target-date funds are there to help you manage your assets for an extra fee. It also charges 0.25% to 0.50% annually to help you manage your assets. While target funds charge slightly above similar index funds that you would normally pay for on your own.

Dividend-paying stocks: this type of investment is best for investors who like steady and constant income from dividend-paying stocks. This kind of investing is aimed at building a portfolio to stocks that provide steady, high-dividend payments. Some companies are steady and consistent in paying a dividend. They pay it either annually, bi-annually, quarterly or monthly. These payments could be in cash or stock.

Annuities: Annuities are great for investors who need a guaranteed and safe means of investing. They are insurance contracts that offer steady income payments for a long period. Annuities are regarded as a safe investment that provides a steady retirement income for those who seek retirement. There are three main types of annuities contract. They are fixed annuities, index annuities and variable annuities.

Conclusion

Everybody is mean to retire at some point in their lives whenever they get to that stage but how you plan towards it matter now more than ever. Visualize enjoying your retirement without worrying about the world because you paid your dues and life is finally letting you have a taste of it.

Do you know any other ways to invest for retirement? Tell us in the comment section