The best time to start saving for retirement is right now. The earlier you start, the more money you will have saved by the time you retire. Even if you put away a small amount every month, it will have time to grow into something bigger.
There are regular changes to Social Security and Medicare that will affect your needs upon retirement. However, the general recommendation is to save ten to twelve times your yearly income. Investing will give you a total higher than that to draw from when you retire. This means if you make $50,000 per year, you should aim to have at least $500,000 in savings by the age you would like to retire.
Hiring a financial advisor can also help you make educated decisions about your retirement savings.
The following are a few basic things to consider when you are ready to start saving for your retirement:
Which kind of plan works best for you and your goals
There are dozens of types of retirement plans. Some are dependent on your employer participating, and others have minimums to start the accounts and other stipulations. These are the main types of retirement plans:
- 401(k)- A 401(k) is a retirement plan through your employer. Both the employee and the employer can contribute to this plan. Frequently employers offer a matching amount of what their employees invest, which is a free money bonus for you. The money is taken right out of your paycheck so you only have to make the decision once to get it started. This money is not taxed, but also can not be touched until a certain age without paying penalty fees.
- Individual Retirement Account (IRA)- There are many different types of IRAs, but generally, an IRA allows you to make all the decisions about how much and where your money will be invested. There are a wide range of choices for investments such as stocks, mutual funds, and bonds. A financial advisor can help you make these decisions.
- Self-employed retirement plans- These plans are perfect for those who are self-employed, contract employees, and small business owners. You get to make nearly all the decisions about where and how much to contribute. You can set them up quickly and easily, sometimes with a financial institution you already use. Ask to see if any of those businesses offer retirement planning services. There are also financial planners who are experts in investing for the self-employed. While this is a basic overview of the main types of retirement plans, a financial advisor may have others they can tell you about.
What amount of risk you should take on investments
The stock market can sound like a game of chance, and no one wants to throw away a lot of money if things go wrong. That risk is what helps your money grow though. When you are younger, you can invest in stocks that fluctuate frequently. Over decades, your money will ebb and flow, but generally it will grow.
As you get older, you can invest in more stable assets, such as bonds.
What financial acronyms and terms mean, where your money is going, and what that means for your future
Financial information is confusing. It’s full of acronyms and terms whose meanings the average person couldn’t even guess. Taking the time to learn the lingo is going to help you make better choices and build a more secure future. Don’t be afraid to recruit the help of a professional and to keep asking questions until you understand where your money is and what it is doing for your future. The more you understand, the better decisions you will make.
Where to begin saving for retirement
While you want to have a decent grasp on what your money is doing, you don’t need to become a stock market expert. Don’t let that be a hurdle to stop you from investing. Make an informed decision on the plan that best works for you. Use the help of a financial advisor, your company’s human resource department, or some Google searching to get started. The stock market changes daily, but all those small ups and downs should not cause you anxiety. Retirement is about looking at the big, long-term picture.
Many plans have a built-in retirement target dates and will adjust your investments to help you meet that goal. You don’t need to make any daily decisions about how to best grow your money. Using a broker to set up your retirement account will cost you a small percentage, but they are experts that can answer questions and anticipate any problems. They are there to ensure that the process is smooth and easy for you.
The one thing everyone agrees on when it comes to retirement is that the sooner you start, the better. Even if you have just started your first job, put a little bit aside. And don’t ever think it’s too late to start. Anything is better than nothing on the day you retire. With a little research, anyone can start saving for retirement in a financially responsible way. Understand the big decisions you need to make and recruit some help with the more complicated aspects, and soon you will be on your way to a retirement fund that will provide for you when you need it.