5 Simple Steps to Start Saving for Retirement
Everyone hopes to retire one day, which means everyone needs to plan for it. It’s never too early to get started. You may not have the financial flexibility to begin setting aside a significant portion of your income right now, but even a small
amount of money adds up over time. The key is to start thinking and talking about retirement, setting financial goals, and maximizing your savings using the money and tools available to you.
Try these simple steps right now to start saving for retirement.
Calculate how much you need to save
How much do you need to save for retirement? There is no magic number. The simple answer is to save enough to cover your retirement expenses. Try to save between 10% and 15% of your annual income. Start saving as early as possible and incrementally increase your percentage each year, if you can. Your end goal should be to replace 70% of your annual pre-retirement income, with the expectation that Social Security will account for the remaining 30%. You can use a retirement calculator to track your progress and determine how much you need to save while accounting for inflation and salary increases.
As long as you are at least 22 years of age, you can use the Social Security website’s calculator to estimate the amount of benefits you will receive once you are eligible. Knowing how much you can expect to receive from Social Security is key to building your retirement plan. With the news that the surplus in the trust funds that disperse Social Security benefits will be depleted by 2035, it is important to stay current on the laws and policies being proposed by the U.S. Congress to shore up Social Security’s finances for future generations.
Consult with a financial advisor
Don’t hesitate to admit you’re out of depth when it comes to financial planning. Investing for retirement can be an overwhelming endeavor, so it makes sense to seek the counsel of a professional. A financial advisor can help you review your investments, set realistic goals for retirement, and present new opportunities to increase your savings.
To find a financial advisor, start by asking friends or family for recommendations. Personal recommendations can make it easier to find an affordable advisor who works with people in the same tax bracket as you. U.S. World News & Report also hosts an online database of financial advisors across the country to help you find one local to your area.
Contribute to your 401(k)
If you are enrolled in a 401(k) plan through your employer, make regular contributions. A 401(k) is a retirement account into which you can invest a percentage of your pre-tax salary. As long as the money remains in your plan, you pay no taxes on any investment growth.
One of the most coveted elements of the 401(k) plan is the employer match. Your employer may offer to match the amount you contribute to your plan. If you don’t take advantage of the employer match by contributing the maximum amount, you are leaving money on the table. Contributing more into your 401(k) also lowers your total taxable income for the year.
Open a Roth IRA
A Roth Individual Retirement Account (IRA) is a savings account that allows you to invest income for which you have already paid taxes. That means you pay no taxes on any investment growth, nor do you pay taxes on any withdrawals after age 59 ½. If you are young and first starting to build your retirement savings, Roth IRAs are an effective way to grow your money because of the abundance of time you’ll have to invest.
If you are enrolled in a 401(k) plan through your employer and take a position with another company, you can take that 401(k) and convert it into a Roth IRA.
Pay off your mortgage before retirement
Eliminate as much of your debt as possible before retirement. You will be on a fixed income, making it more difficult to repay your debt. In the short term, plan ahead. If you have a home loan, build out your schedule of mortgage payments and determine if you are on pace to pay off your mortgage by retirement age. It is important to treat your mortgage as an investment that requires a fair share of financial planning.
If you are ready to start talking about retirement planning and wish to explore the investment options available to you, please feel free to contact us. There is no time like the present to start planning for your future, and we can help bring your future into focus.