You’re not alone in your quest to save for retirement. In fact, the majority of Americans believe their retirement will be difficult to achieve without sacrifices and hard work. However, if you start saving now, you may be able to enjoy a financially secure retirement years down the road. Here’s how:
Know how much you will need for retirement
The first step to saving for retirement is knowing how much you will need. Knowing this number is crucial because it tells you how much you need to save in order to achieve the lifestyle you want and avoid running out of money. The best way to figure out your retirement goal is by using a retirement calculator.
In addition, it’s important that you have a plan for when and how much of your savings should be withdrawn each year. Don’t forget to factor in all income sources such as Social Security or pensions.
A costly mistake many people make when estimating their future expenses is assuming they will live on less once retired than they do now (i.e., “I don’t need my car anymore so I won’t drive”). However, this isn’t usually true: Many people find themselves spending more during their golden years because their health deteriorates or they become bored with retirement activities like reading books at home all day!
Start saving as early as possible
As we’ve mentioned, retirement saving is an essential part of your financial plan. Your goal should be to save as much as possible while you’re working, so that when you retire, you’ll have enough money to live on without having to worry about running out of funds or taking out a loan.
The earlier you start saving for retirement and investing in stocks and bonds, the more time those investments have to grow —and thanks to something called compound interest, each year will make a huge difference in how much money you end up with by the end of your working years.
So if you haven’t already started saving for retirement yet: don’t wait!
Start today by opening an IRA at any number of online brokerages such as Betterment, or Wealthfront; these sites offer low-cost investment options based on your needs and goals—and with their help at least one piece of your financial puzzle will fall into place!
On the other hand, if you want a full service financial advisor to build you a customized financial plan to guide you the whole way–go here.
Save as much of your pay as you can
Save as much of your pay as you can, but don’t sacrifice other financial goals.
Build an emergency fund. You should have at least 3-6 months’ worth of expenses in cash or easily accessible investments for emergencies or unplanned expenses—like a car repair or home repair.
Be realistic about your spending habits and goals. While saving for retirement is admirable, it’s important to be realistic about the amount of money that will go toward this goal each month. If you’re just starting out, aim to save at least 10% of your income each month if possible; this will help ensure that you’re on track to reach your retirement savings goals with time to spare!
Contribute to an employer-sponsored retirement plan, if one is available.
If you work for an employer, chances are you have access to a 401(k) or 403(b) retirement plan. These plans allow you to invest before-tax dollars and the money grows tax-free until it’s withdrawn during retirement. The current maximum contribution you can make is $20,500 for 2022.
According to the U.S. Bureau of Labor Statistics, only about half of working Americans participate in an employer-sponsored retirement plan. That number needs to rise! By participating in a employer plan, money is deducted from your paycheck automatically and sent to the plan. Couldn’t be any easier!
Take advantage of any employer matches to your contribution.
If your employer has a 401(k) plan and offers matching contributions, take advantage of them! The idea behind an employer match is simple: the company will contribute money to your 401(k) account if you do.
For example, let’s say that your company will contribute 50 cents for every dollar you save up to 6% of your salary each year. If you earn $50,000 per year and contribute 6% of it into their plan, they’ll kick in another 3%. This makes saving for retirement even more effective! Don’t leave free money on the table!
Change contribution amounts periodically to reflect increases in your income.
If you’re making regular contributions to your retirement plan, don’t forget to increase your contribution amount on an annual basis. When you get a raise or a bonus, make sure it goes into your retirement savings first. This will reduce your tax burden today and continue to build your nest egg.
Take full advantage of “catch-up” contributions if you are age 50 or older.
If you’re 50 or older in 2022, you can contribute an additional $6,500 to your 401(k) or 403(b) plan. This is called a “catch-up” contribution.
The same is true for IRA contributions—if you’re 50 or older in 2022, you can contribute an additional $1,000 to your IRA.
Traditional IRAs & Roth IRAs
Traditional IRAs and Roth IRAs are two types of individual retirement accounts. Traditional IRA’s allow you to contribute up to $6,000 annually in pre-tax dollars, Interest earned on your investments is taxed as ordinary income when withdrawn.
Roth IRAs are funded with post-tax dollars ($6,000 maximum too) and offer no tax deduction for contributions or earnings on withdrawals; however, qualified distributions are entirely free from federal income tax and may even be eligible for state income tax deductions in some states. In addition, if you’re under 59 1/2 years old when making a withdrawal from a Roth IRA then there will be no penalty assessed against your account even if the funds withdrawn were non-qualified; however if they’re more than five years old when being withdrawn then there may still be an early withdrawal penalty charged based off how long ago they were deposited into your account (see table below).
A small amount saved now could be worth a lot when you retire.
If you haven’t started saving for retirement, or haven’t been saving enough, it’s not too late. Even if you don’t have much time left to get on track, it’s still better than nothing. And even with what little amount of savings you might be able to put away each month now, it can still make all the difference in the world when you enter your golden years.
The key is starting early and continuing to save regularly, even if the amount seems small. Remember: A small amount saved now could be worth a lot when you retire.
Conclusion
That’s all there is to it! If you’re like most people, then saving for retirement can seem like a daunting task. But we hope that this article has given you some ideas on how to get started. At the end of the day, it’s important not only for yourself but also for your future financial security. And by starting early and setting aside as much money as possible now so that when retirement does come around, you’ll be ready!