Saving for retirement is an ongoing process throughout your lifetime. If you start this process as soon as you can, it’ll be more advantageous for you in the long run. A successfully prepared and executed savings plan can lead to a smooth transition into retirement. While it seems that there are a lot of factors to consider, anyone can start properly planning for their retirement.
Here’s how to start:
Determining Saving Goals
Saving for retirement is as essential as meeting your other financial goals, like storing emergency funds or paying off student loans. Thus, it should be treated as such and should be made one of your top priorities. Keep in mind that your expenses now and when you retire will vary based on various factors. In general, it’s best to plan for at least 70% to 90% of your spending.
A couple of other factors to consider are the size of your home, any household payments you may incur, car payments, and insurance. Reevaluate your current living standards and decide whether you will maintain the same standards later on in life. Then work with a trusted retirement financial service to start setting achievable financial targets and help you stay on track.
Learning Ways to Save
Make the most out of online retirement calculators to make projections on how much you need to save for retirement. Then, look into the different ways to set aside your funds.
Savings Accounts
Dedicate a separate savings account solely for your retirement. While your early 20s may sound too early to plan for it, it’s never too early to begin — and it will benefit you to start soon. This is due to compound interest, which is simply interest reinvested to grow your funds more.
Retirement Plans
Look into saving plans. Most employers offer the opportunity to open a traditional 401k account. This allows you to save a part of your salary before or after taxes. Some employers may then match a certain percentage of your contributions. Any earnings in the 401k account are only taxed when you withdraw them.
Your employer may also offer a Roth 401k as an alternative. Unlike a traditional 401k, you will be taxed on each contribution. However, upon withdrawal for your retirement, there will be no more additional taxes due on your total earnings.
To ease this process, you can even set up monthly auto-contributions that directly transfer a portion of your paycheck into your Individual Retirement Account (IRA). Make sure that you keep a close eye on your savings. Depending on your retirement plan, you may even be given the option to increase the percentage of your contributions annually.
Investing
When your financial situation allows it, put a portion of your money in high-interest saving accounts, stocks, bonds, certificates of deposit, and other investments. Make an effort to go for riskier options in your younger years and transition into safer alternatives as you go along. Investing in more precarious investment options when you’re older may give you little room to recover in the event that they result in losses.
Social Security
Acquiring Social Security allows you to have a replacement for your paycheck, which is referenced from your pre-retirement earnings. Keep in mind that the current payout may change throughout the following years. This means that it’s not advisable to rely solely on this form of income. One way to earn higher Social Security benefits is to deliberately delay receiving them. As long as you have other sources of funds, you can leave your Social Security to grow until you really need it.
Pension
Having a pension secures an additional form of retirement income for you. You can usually be eligible for this benefit after working for certain employers in a set amount of time. As you render more years of service to your employer, you may then be able to receive a greater pension.
Other Methods
Simply put, the best way to reduce your debt is to actively avoid acquiring more. Opt to pay for items using cash instead of credit cards. Consider speeding up your existing payments to reduce the amount of interest that may accumulate further. Separate your needs from your wants and try the 30-day rule.
Safeguarding Your Retirement
Avoid financial issues in your older years. Identify your goals and maximize the various ways to grow your money for the future. Look into opening savings accounts, applying for retirement plans, smart investments, getting social security, and a pension. Set yourself up for an enjoyable retirement with proper planning and ways to manage your money.
