Retirement planning sounds overwhelming, right? If you’re in your 20s or even 30s retirement feels like a lifetime away, so why bother?
What if we told you now is the perfect time to invest? The longer you wait, the harder it is to have the retirement savings you need and/or want. Many people need as much as 80% of their current income annually in retirement. Depending on your needs, you’re talking $1 million or more in many cases.
So how do you get started?
If there’s one thing you must do, it’s start now. It doesn’t matter if you are 22, 35, or 50-years old – start saving now. The younger you are, the less you have to save right now thanks to compounding interest. That’s why we keep saying you must start early.
If you waited, don’t worry; just increase the amount you save each month. Use a retirement calculator to figure out what that amount is, as it depends on many factors including your expenses, lifestyle, and habits.
Match your Employer’s Match
Do you work for someone right now? Do they offer a 401K with employer match? That’s like giving you free money – don’t give that up. Find out how much your employer will match. For example, if they will match 3% of your salary, contribute at least that amount. Let’s say you make $60,000. That’s $1,800 per year in free money and that’s its value today, that money will increase each year as your earnings compound.
Don’t be Scared
Aggressive investing sounds scary, right? Don’t be, especially if you’re young. Aggressive investing now means greater returns in the future. If the market takes a dive, that’s okay – you have time to make your money back. If you stay conservative, you won’t grow your earnings nearly as fast and you’ll have to work twice as hard to get the same earnings.
Start an IRA if Nothing Else
If your employer doesn’t offer a 401K or you have extra funds you want to invest for retirement, start an IRA. There are limits on how much you can contribute each year, but it’s something. In 2020, you can invest $6,000 annually. If you’re over 50-years old, you can invest an extra $1,000 as a ‘catch up’ contribution.
Leave your Retirement Savings
Make sure you don’t ‘over-invest.’ Your retirement savings aren’t liquid. If you cash them in before you are 59 ½ years old, you’ll pay penalties and increase your taxable income. This sets your retirement savings back considerably.
Retirement planning for beginners isn’t as overwhelming as it seems. The key is to start somewhere. If you’re unsure, get advice. Talk to your employer about the 401K options you have. Talk to a professional about starting an IRA. No matter which path you take, commit to one (or more) and stick to it. Every dollar you save now, even if it’s only a few dollars, adds up and will be worth a lot more by the time you retire.