Designing the right plan for retirement may sound difficult to do, but it’s entirely possible. While some may put off saving for retirement later in life to the point where it’s hard to scrape by, others have put plans in place before they could even drive.
So how soon should I start saving?
Well, to be quite frank, you should have already started saving. Realistically, though, it is best to do it as soon as you have some type of regular income. It’s not a bad thing if you don’t get started until you are in your mid-20’s. Not many people get a chance to save earlier than that.
The idea is that the sooner you start setting aside money for your retirement, the higher your amount of time for growth will be. Investing your money in retirement will build interest and the longer it sits, the more it increases exponentially.
Let’s give a quick scenario for a 25-year-old. Starting at that age and placing $3k annually into an account designated for retirement at a length of 10 years (then stopping at 35) will then go all the way up to nearly half a million after just an investment overall of $30k. This is, of course, if there is an 8 percent return annually.
On the flip side, if you were to start as a 35-year-old and deposited the same amount annually for an entire three decades, that will be $90k deposited. However, the amount that is returned at the end will be less than $400k. You can now see what the benefit of starting early is.
What type of investments should I be making?
There are accounts such as IRAs (Individual Retirement Accounts) and 401Ks that will allow for tax benefits.
Equity Trust Company Complaints breaks down forms of 401Ks to find out which one is best for you. There’s a lot to choose from so it’s best to know what you are getting into.
There are many different options when considering these two accounts, but you will find that nearly all of them give you the option to defer the taxes. This means the number you have put into the account aren’t susceptible to income tax until after it has been withdrawn.
If you are currently employed full-time, chances are your company will match a portion your 401K amount you deposit on each paycheck.
How much should I be saving?
Truthfully, you will want to put as much into your retirement account as you can while still being able to live comfortably. Most advisors would suggest that anywhere between 10-15 percent is a good place to start if you are around the 25-year-old mark. Take advantage of companies matching 401K while you get the chance.
You will want to make sure you study every scenario beforehand to know what your long term milestone is for retirement. It will depend on the person, as some will want to retire to an expensive place such as Hawaii. Others are content staying at the home they are in.
Keep your ideal number in mind while you plan out your savings. There are many calculators you can find on the internet (or in a financial institution) that you can use to determine how much you want to have saved up. From there, you can figure out how much of each paycheck should go towards this number.
The rule of thumb is that you will need about $350k to make up for the amount that you will be getting from Social Security and/or pension plans. You will want to save up $15-20 for each dollar between money you bring in and your expenditures.
Make sure to check in on your plan every year and you should have a solid idea of where you are at in the process. It’s a marathon, not a race. That’s important to remember so you don’t get discouraged when there isn’t a large amount after just a couple of years.