For Retirement, Start
Saving Early and Build from There
Say that two young adults, Ben and Alice, have both started
their first job — with new people, new responsibilities and new money in the
bank account each Friday. Both work hard, but Ben also plays hard, eating out a
lot and spending on vacations. Alice, meanwhile, makes sure to sock away a
little bit of every paycheck in her retirement account, aware that times might
not always be so flush.
Who do you think will be in better shape at the end of his
career? Of course, it’s Alice: When it comes to retirement planning, it pays to
start early and build over time.
But there’s hope still for Ben. Here’s some guidance on saving
for retirement, no matter your age or how diligently you’ve been saving up to
now.
Get time on your side
Retirement savings grow largely because of compound interest: The money put away in the early years will generate interest earnings of its own with each passing year. Because Alice has started investing at the beginning of her career, her savings will have more time to grow.
Get time on your side
Retirement savings grow largely because of compound interest: The money put away in the early years will generate interest earnings of its own with each passing year. Because Alice has started investing at the beginning of her career, her savings will have more time to grow.
How much does time matter? If Alice invests just $100 a month
beginning when she turns 25, and she earns an average of 7% on it each year
until retirement at 65, she’ll end up with almost $265,000. For Ben to see
similar results starting at age 35, he’ll have to invest about $220 a month —
or $510 a month if he starts at age 45.
If you didn’t start saving right when you began your career,
it’s OK. Just begin as soon as you can in order to take advantage of
compounding interest.
Draw up a plan
How much is enough in retirement? Everyone’s answer is different and personal, but consider the 80% rule. That says you should plan to save enough so that for each year of your retirement, you can spend 80% of the amount you made in your last year working without exhausting your retirement fund.
Draw up a plan
How much is enough in retirement? Everyone’s answer is different and personal, but consider the 80% rule. That says you should plan to save enough so that for each year of your retirement, you can spend 80% of the amount you made in your last year working without exhausting your retirement fund.
To figure out how much you can save each month, take your
monthly pay and subtract your regular monthly bills and payments, making sure
to allow yourself enough money to have a little bit of fun. If you need to,
take a side job and devote all of the money you get from that to your
retirement savings. And remember that the amount of money you’ll actually need
can change, so it’s smart to save even a little more than you think you’ll
need.
Still unsure? Financial institutions like Tropical Financial
Credit Union have advisors available to help with retirement planning.
Maximize your retirement benefits
If your employer offers a 401(k) and will match your contribution, put in enough to get the full match. So long as you can afford it, it’s getting the most “free” money available to you.
Maximize your retirement benefits
If your employer offers a 401(k) and will match your contribution, put in enough to get the full match. So long as you can afford it, it’s getting the most “free” money available to you.
Beyond your 401(k), consider saving more in a separate
individual retirement account — Roth or traditional — especially if you’re a
Ben and waiting a bit to start saving. The primary difference between the two
accounts is when you pay taxes: up front (Roth) or when you take distributions
in retirement (traditional). Brokerage accounts are another investment type to
consider.
It’s never too soon to start thinking about your retirement,
not even if it’s the first day of your working life. And whether you’re a Ben
or an Alice, there are ways to get to where you want to be.
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