You might have been putting off saving for retirement because you thought it would be too expensive. The truth is, though, that the earlier you start saving, the more money will accumulate in your account over time. In fact, if you invest $100 a month from age 25 to 35 with an average return of five per cent, your account will be worth $160,000 by age 65. If you wait until age 45 to begin investing the same amount each month with the same average rate of return, it will only equal about half as much: $80,000!
It is never too late to start saving, though even if you started at age 55, you would still have $110,000 in your account by age 65.
What Is Your Ideal Retirement?
Once you have begun saving, it is important to set a goal for your retirement. If you do not know how much money would allow you to live the life of your dreams in retirement, try setting up an account at Personal Capital or Mint and track your spending over time. This will give you a better idea of how much money you will need.
Don’t forget to take into account health care costs, inflation and the number of years that your savings may have to support you before making a decision on how much money to put away each month for retirement. There is no one-size-fits-all answer when it comes to what percentage of income should be saved, as everyone has a different financial situation.
If you have a 401(k) or other employer-sponsored retirement accounts, make sure that you are investing your money in the right funds. Many employers offer their employees a limited selection of investment options to choose from; if this is the case for you, try not to get overwhelmed by all of the choices and take advantage of any matching funds they offer. This is essentially free money and should at least be put into a safe investment like a savings account or stable fund until you learn more about investing on your own.
Keep in mind that the stock market can fluctuate, so it’s important to balance growth with stability when choosing investments for retirement: if you pick too many high-risk funds, your money could be at risk if the market tanks.
It is also important to ensure that you are not paying unnecessary fees on any retirement accounts, as they can eat into your savings over time. If you want more information about how much of a fee you will pay for certain investments, many great resources are available online, like NerdWallet’s 401(k) fee analyzer.
Save with Other Accounts
If you are like most people, your savings will not be limited to one retirement account. Make sure that you take full advantage of all accounts available to you. Put money in a Roth IRA or traditional individual retirement account if possible; both offer tax benefits.
If your employer’s retirement plan does not offer any matching funds, consider saving with an individual 401(k) or IRA account on the side to take advantage of multiple tax breaks and increase your savings over time. Even if you max out all of these accounts, it will still most likely be less than what would be allotted in your employer’s plan, but every little bit helps; remember that even small amounts saved over time can really add up!
Use a Retirement Calculator
If you are struggling to figure out how much money you should be saving each month for retirement, try using an online calculator. These calculators will ask you for some basic information about your financial situation and then provide a reasonable estimate of how much money you should save each month from hitting your retirement goals.
Remember that these are only estimates, so don’t be discouraged if the amount they recommend seems unattainable at first! You can also try different scenarios with online tools like saving more, saving less or using alternative investment strategies to see how much money you could accumulate over time.
Even if you can’t save as much as the calculator recommends immediately, just starting with a small amount will help give your savings some momentum and increase the likelihood that they will continue throughout your lifetime. Try taking advantage of any matching funds offered by your employer, contributing to an IRA or 401(k) account on the side and making sure not to make any unnecessary withdrawals from your retirement accounts.
Take Advantage of Other Retirement Savings Strategies
If you are self-employed or otherwise employed by a business that does not offer any sort of retirement plan, there is still hope! You can open an individual 401(k) account to save for your retirement. As long as you make less than $110,000 per year ($61,500 for those who are married filing separately), you will be allowed to contribute up to $18,000 per year into a traditional or Roth individual 401(k).
Remember that this is an “above the line” deduction, which can help lower your taxable income, so even if you’re not self-employed, every penny saved could potentially reduce your tax burden.
If you are like most people, your savings will not be limited to one retirement account. Make sure that you take full advantage of all accounts available to you. Try using an online calculator. These calculators will ask you for some basic information about your financial situation and then provide a reasonable estimate of how much money you should save each month from hitting your retirement goals.