3 Retirement Saving Tips You Need to Know
Regardless of age, saving for retirement is important. Almost everyone will retire at some point. Even if you continue working part-time or volunteering, having income to draw on when you are older will be extremely beneficial. This article explores three simple tactics to supercharge your retirement plan.
1. 401(k) and 403(b) Retirement Plans
If offered by the employer, a company matched retirement plan is a no-brainer. It provides free contributions from the employer to significantly boost retirement savings. Employees with access to a workplace retirement plan should make every effort to contribute the maximum matched amount.
For example, if John’s company offers to match up to 5 percent of his salary in annual retirement contributions, but he chooses to contribute 3 percent instead, he is effectively turning down free money. While 2 percent may not sound like much, over time it makes a big difference. If John earns $50,000 per year, contributing 5 percent of his salary instead of 3 percent will increase his contributions by $2,000 a year. Of this, $1,000 come from his contributions, and $1,000 come from his employer’s contributions.
Over the course of a 40-year career, contributing 3 percent would result in total contributions of $120,000. Contributing 5 percent instead would result in total contributions of $200,000, leaving John $80,000 better off. And this gain does not even take into account the effect of compound interest, which would amplify John’s gain still further.
2. Compound Interest
When you are beginning your career, it is easy to find reasons to postpone opening a retirement savings account. However, by starting a retirement plan early, investors receive the maximum effect of compound interest. Even individuals who only set aside modest contributions benefit from the effect of compound interest, helping their money to work harder and their savings to go further. Put simply, compound interest is interest on interest. As with employer retirement matching, it effectively creates free money.
Consider two savers: Michael and Sally. Michael opens a retirement savings plan aged 20, investing $50 a month. Sally opens one at age 40, investing $100 a month. On retirement at age 60, they have both made $24,000 in retirement contributions. However, supposing an average annual interest rate of 4 percent, Sally will have a retirement pot of $36,500. However, Michael’s will be almost $60,000. Thanks to the effect of compound interest, Michael has ended up with almost twice as much.
3. Malta Pension Plans
Many financial experts are recommending Malta Pension Plans as the new, supercharged Roth IRA. This tax favored retirement savings vehicle is particularly beneficial for high income taxpayers, offering significant tax deferral potential.
A Malta Pension Plan is essentially an offshore retirement fund where contributions are tax-free. Thanks to the US-Malta Income Tax Treaty, US taxpayers are free to invest in Malta Pension Plans, enjoying tax deferrals on contributions as well as tax-favored retirement distributions.
Malta Pension Plans offer significant advantages over traditional and Roth IRAs. Whereas Roth IRA contributions are capped, US taxpayers can make unlimited contributions to their Malta Pension Plan. They can also start receiving distributions from the age of 50 without incurring significant financial penalties as with a Roth IRA. In addition, retirement savers can invest non-cash assets, such as business interests, real estate, or works of art directly into their Malta Pension Plan.
With so many advantages, it is easy to see why financial experts across America are recommending Malta Pension Plans as the retirement savings vehicle of choice.
