Many people worry about having enough money to live on
during retirement. And that's an understandable fear.
Living costs have been soaring lately due to inflation.
While the increases we've seen have been extreme, the reality is that expenses
tend to rise over time. As such, if you're in your 40s and are several decades
away from retirement, it can be difficult to predict how much income you'll end
up needing.
While you may have to grapple with certain unknowns when
retirement is still a ways off, you can also take steps to set yourself up for
long-term financial security. And if you make these moves during your 40s,
you're apt to appreciate them once retirement rolls around.
1. Max out your IRA
Maxing out an IRA in your 40s means setting aside $500 a
month, or $6,000 a year, for retirement-savings purposes. To be clear, that's
not an easy thing for everyone. But if you commit to that goal, you can set
yourself up with a lot of money for the future.
A good way to stay on track in that regard is to find an IRA
that offers an automatic savings feature and set it up so that $500 gets
transferred from your checking account every month. If you put the process on
autopilot, you'll be less likely to spend that $500 impulsively and miss a
month's contribution here and there.
2. Invest in dividend stocks
The great thing about dividend stocks is that they offer two
opportunities to make money. First, the dividends you collect can be reinvested
for added growth during your 40s, and once you're retired, you can cash out
those dividends and use them as income.
Additionally, companies that consistently pay dividends are
often stable businesses with solid growth potential. So if you hold dividend
stocks for many years, their value could grow in time.
3. Start funding an HSA
Healthcare could end up being one of your largest expenses
in retirement, if not the largest. That's why saving for it in advance is
important. If you qualify for an HSA, it pays to take advantage of it.
HSA eligibility hinges on being enrolled in a
high-deductible health insurance plan. But the great thing about HSAs is that
they're triple tax-advantaged. Contributions go in tax-free, investment gains
are tax-free, and withdrawals are tax-free when used for qualified medical
expenses.
Another great thing about HSAs? Once you turn 65, you can
treat yours like a traditional retirement plan and withdraw funds for any
purpose without incurring penalties. You'll pay taxes on non-medical
withdrawals, but that's no different than the taxes you'd pay on withdrawals
from a traditional IRA.
Chances are, though, you'll need the bulk of your HSA funds
to cover senior healthcare costs, from Medicare premiums to copays. So funding
an HSA a few decades ahead of retirement could make it so you have one less
expense to stress about when you're older.
If you're only halfway through your career, you may not be
ready to focus on retirement just yet. But if you push yourself to make these
key moves, you could really set yourself up for long-term success.
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