The Best Time to Start Planning for Retirement
Is Now
Planning for retirement is important for everyone, no matter what part of life you’re in. Whether you’ve started your first full-time job, are hitting full stride in your career, or beginning to look retirement in the eye, the time to start, or continue, planning is now.
Thinking about retirement can be daunting, especially if you’re young, but it’s part of life and the more you plan ahead, the easier it will be. Age aside, a critical factor in retirement planning is knowledge.
Knowledge is Key
Knowing how much money you’ll need during retirement will determine how you go about planning for it. Aside from the standard costs of living, retirement gives you a lot more time to travel and spend money, meaning you’ll have to save more. Also, as you age, you have a higher risk of needing medical care, which will affect how much you need to save. There’s a lot of factors to consider, which is why a retirement calculator, like this one operated by AARP, can be extremely helpful in determining how much you’ll want to have when you clock out of work for the final time.
A general rule of thumb is that you should have at least ten times your annual income in savings when you retire. So, if you retire from an $80,000-a-year job, you’ll want over $800,000 in your retirement accounts to maintain your lifestyle. Now, this isn’t a strict rule and you’ll want to aim higher than just ten times, but it’s a good guideline to set for yourself as you plan.
Start Saving Early! As In Right Now
Even if retirement is a long way away, you should start saving for it, right now. Don’t wait. Odds are, if you have a full-time job, your employer offers a retirement package, and you should absolutely be taking advantage of that. Most employers will match your contributions up to a certain amount, meaning you’re saving more and positioning yourself for a happy retirement.
The earlier you start saving, the better. Ten years of saving, with the way compound interest works, can make a difference of over $500,000 dollars by the time you retire. If you aren’t already saving for retirement, start doing so, now. Add it into your budget, you won’t regret it.
Choose the Right Plan
When it comes to choosing a retirement plan, you have options which include:
- 401(k): This is the most common type of retirement account. It lets you set aside part of your paycheck into the account, and those contributions are made pre-tax, meaning your income tax is calculated without your contributions. Additionally, most employers will match your contributions up to a certain amount, boosting your savings. You can’t take any money out of a 401(k) before you turn 59-and-a-half years old without incurring a penalty, which is something to keep in mind.
- Individual retirement accounts (IRAs): these retirement accounts are unattached from your employer and rely solely on your personal contributions. They make a strong addition to your retirement collection. They do have annual contribution limits and penalties for withdrawing money before you reach 59-and-a-half years of age.
- Roth IRA: Still an IRA but contributions made to a Roth IRA are not tax deductible. The advantage to this is that when you withdraw at retirement age, you won’t be paying taxes on it.
- Profit Sharing: With profit sharing, an employer allows an employee to share in their profits based on the company’s earnings. The company has full control of how much profit is shared, which removes some of the flexibility offered by other accounts.
No matter what account or accounts you choose, the biggest thing is to start saving now. In the saving mood after reading this? Check out some of our personal savings’ accounts by clicking here.
