Retirement – everyone wants to get there, but nobody wants to get ready for it. If you’ve been putting off planning for retirement, it’s never too late (or too early) to start saving for when your income stops coming in. Here are 5 critical things you need to know about saving for retirement.
While this question is subject to debate, there’s no doubt that Social Security will eventually begin distributing more benefits than it receives. In fact, some experts project that Social Security funds are expected to be depleted by 2034, after which benefits will likely be reduced. And, with approximately 10,000 baby boomers retiring every day, and the number of workers paying into Social Security falling, it’s easy to see why faith in Social Security is failing. This means that finding alternate sources of retirement income will be even more important for you and your generation.
The general rule of retirement savings is that you’re never too young to start. According to the website, moneyunder30.com, a 22 year old who puts away 10% of his $40,000 yearly salary toward retirement (assuming a 3% employee matching contribution) will save approximately $1.7 million by the time he’s 65. But, if he waits to begin saving at age 32, that nest egg shrinks to about $780,000. In other words, starting early is key when it comes to saving for retirement. But, that doesn’t mean you should fret if you haven’t started saving yet. Putting some money away today is always better than starting tomorrow.
For many, the best place to start saving for retirement is with an employee-sponsored 401(k), especially if you have an employer that will match your contributions. But, a 401(k) might not always be the best or only option. For many, opening alternative or additional retirement accounts, including a certificate of deposit (CD) or an individual retirement account (IRA), can be a great way to go. A CD, for example, usually offers a much better interest rate than a traditional bank account. A CD is a safe investment, and takes surprisingly little time and cash to qualify and start making your money work for you. An IRA, whether traditional or of the Roth variety, is also a popular way to save for retirement. In a Traditional IRA, contributions are tax-deferred and earn compounding interest, as long as you don’t withdraw funds. A Roth IRA, on the other hand, is taxed as income, but that means you won’t have to pay taxes on the money at the time of withdrawal, provided you meet certain requirements.
The answer to that question depends on individual circumstances, but as a general rule, most experts agree that you should put between 8% and 12% of your salary toward retirement. To begin, research your employer’s 401(k) program and take full advantage of the free money offered through matching contributions, and then diversify your investments. Diversifying can provide greater flexibility and offer more tax advantages in the long run. And, as a general rule, the older you get, the more conservative about your retirement investments you should become.
Again, the answer to this question depends on your individual circumstances, which is why it’s a great idea to speak with a financial adviser about your retirement savings goals.
Planning for retirement isn’t always easy. It takes discipline and foresight to save, but that doesn’t mean options aren’t readily available. Yet, the unfortunate reality is that too many Americans fail to take advantage of their retirement resources, and reach retirement age with too few dollars set aside for the golden years of life. So, no matter how much you have set aside and no matter how old or young you feel, take some time to meet with an adviser, evaluate your income, and start saving for retirement today.
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