You should expect to need money outside of Social Security once your retirement rolls around. And that's where your retirement savings come in.
Your retirement plan of choice may be an IRA. If so, you have a prime opportunity to build up a solid nest egg -- one that allows you to achieve your retirement goals, and then some. But you may want to focus on the following key moves to truly maximize your IRA.
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1. Put your contributions on autopilot
The nice thing about 401(k) plans is that they're funded automatically via payroll deductions. That helps 401(k) savers stay on track.
The good news, though, is that you can set up a similar system for your IRA. Many IRAs allow you to link to a checking account and make automatic contributions on a monthly basis. It pays to put your IRA contributions on autopilot so you don't, for example, get tempted to spend money on extras, leaving yourself without funds for your IRA in a given month.
2. Load up on stocks
One great feature of IRAs is that they generally allow you to invest your retirement savings in individual stocks. With a 401(k) plan, you're generally limited to different funds but can't choose stocks individually.
Being able to handpick stocks for your IRA could lead to a portfolio that's poised for growth. So don't shy away from stocks just because they can be volatile. The stock market has a long history of rewarding savers who have kept their money invested for long periods.
If you contribute $300 monthly to an IRA over a 45-year period and maintain a stock-heavy portfolio, your account might deliver an average annual 8% return, which is just below the stock market's average. Your ending balance in that scenario? A pretty impressive $1.39 million.
3. Save in a Roth account
When you contribute to a traditional IRA, you'll get an immediate tax break on the funds you put in. To put it another way, a $5,000 traditional IRA contribution will shield $5,000 of your income from taxes.
You won't get that same tax break with a Roth IRA. What you will get, though, is the benefit of tax-free gains in your account, as well as tax-free withdrawals during retirement.
The latter has the potential to be huge because many retirees become financially stressed once they're no longer earning a paycheck from work. Having access to tax-free income could make that period of life much easier financially.
Another nice thing about Roth IRAs? They don't force you to take required minimum distributions. That gives you complete control over the savings you've worked hard to build. With a traditional IRA, you'll eventually be forced to start tapping your nest egg or face costly penalties for failing to remove funds from your account.
The right approach to saving for retirement in an IRA could leave you very wealthy and comfortable down the line. Be sure to incorporate these tips into your personal savings strategy for potentially great results.
