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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