Personal Finance Tips - RetirementAugust 12, 2013 09:42
By far the most important reason to budget, save, and invest, is to prepare for your own retirement. To do this effectively, you will need to define at what age you hope to retire, and what standard of living you hope to have. Do you want to retire and split your time between northern locations in the summer and a warmer climate during the winter, do you plan on having a simpler lifestyle close to family, or do you hope to have a home base from which you travel around the world? With these two questions answered, you will be able to identify how much you need to invest and for how long in order to meet those goals. Again, the best strategy is to start investing and saving earlier to leverage the power of compound interest to accelerate your plans for financial freedom, which also allows you to meet those goals at a smaller monthly impact to your budget.
To facilitate saving towards retirement, most countries have tax breaks targeted specifically to retirement investments and savings. This can be a major advantage as your tax rate is normally tied to your income, which will be higher during your peak employment years and drop after you retire. This allows you to defer paying tax on the money you saved until you actually need to use it and when your income tax is lower - you not only get an increase to the investment with compounded interest, but also a decrease in your overall taxes paid throughout your life.
Once you retire, you can then start to draw on this income, with the benefit that the balance of your retirement investments will still continue to generate interest, which will provides an incremental income stream throughout your retirement years.