It’s never too late to start saving and planning for retirement, but starting sooner is definitely better than starting later. To get you on track with the basics of retirement planning, no matter what stage of your working life you’re currently in, we’ve written a quick guide.
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Ready to start building your nest-egg? Follow these helpful tips:
Cutting back Expenses and Saving money
When do you plan to retire? In the United States, it’s important to remember that Medicare benefits apply to those who are 65+, and full social security benefits apply to those 66 and older. For this reason, unless there are extenuating circumstances, you should plan to retire around 65 years of age.
Your employer may also offer retirement planning options, like a pension or 401(k). These are essential assets to consider in future calculations. If you invest a 401(k), read your company’s agreement carefully to see if there are any benefits you can take advantage of, like if your employer matches contributions up to a certain amount.
Even with all those benefits, you will likely not have enough to sustain comfortably on retirement, so you have to start saving now. Here are basic saving goals:
- Set aside 10% of your income for saving and investing, then write your budget. Act like the money never existed.
- Small savings add up over time, just like your savings for retirement. Review your monthly bills, including insurances and entertainment services like cable and phone contracts. When was the last time you negotiated those prices? $50/month saved by combining home and car insurance is $600 saved per year.
- Look at habits like soda and coffee drinking. If you drink one $2 bottle of soda at lunch every day, that’s $60 a month. A single $5 coffee every morning is a staggering $150 monthly. You could easily invest this money instead.
- Debt will never be repaid by making minimum payments. If you have substantial debt, pay it off with a portion of the money intended for savings, and always pay more than the minimum amount.
Investments
Once you have money saved, making smart investments is the next step to turning your 10% savings into a retirement fund. It’s great if you’re already investing a 401(k), but most people will need to make additional funds, and others don’t have investment options from employers.
Since this is your retirement, you should keep a fairly conservative investment profile, limiting the risk to your long-term investments. This money will be sitting for decades, compounding as it’s reinvested, so you should focus on slow gains over time. Most people enlist the help of mutual funds to help pragmatically manage their investments.
Developing an IRA
Individual Retirement Accounts (IRAs) are savings accounts which help you plan for retirement with special tax benefits. There are several types of IRA, each designed for people of all different financial backgrounds to benefit.
IRAs do not make money themselves, but are accounts which hold your investments, such as CDs. Like 401(k)s, which penalize you for withdrawing early, IRAs will not give you full benefits if you take money before you’re 59 ½ years old, and CDs are, as always, subject to term lengths.
The sooner you get started, the sooner you can retire in style. Try to have fun saving, and just envision your happy retirement!