Financial planning doesn’t always feel like fun on the surface, so it’s easy to understand why so many people overlook this important aspect of daily life. This is doubly true for retirement planning, which always feels like so far off in the distance.
That’s why saving for retirement can seem like an incredibly daunting task, especially when it’s so easy to push out. Here are are a few tips to help you lighten the load and feel better about your retirement plan over time.
Retirement savings grow over time, and the more time they have to grow the larger they’ll be.
While all American citizens have Social Security benefits, relying entirely on Social Security for your retirement savings is not necessarily feasible in today’s world. While it’s not always easy to find a job that allows you to contribute immediately to a retirement fund, once you are in either a career where you can contribute, or have enough income to put some aside, consider doing so.
If you get into a habit of saving, you’ll be more compelled to continue doing it even through career changes and life’s ups and downs. In a New York Times article about saving, it was noted that through compound interest you could expect to save twice as much if you start immediately post-college, around 21 to 22 years old, rather than waiting until you’re several years older.
If you’re a recent graduate or in your early twenties, consider contributing to a Roth IRA or contributing to your 401k through your job.
Consider All Your Options
It can be hard to know what the “right” direction is when it comes to setting up retirement accounts. Are you a Roth IRA or a traditional IRA kind of person? It’s important to examine all the investment options at your disposal before you commit to one path or the other.
This chart will help you determine the pros and cons, and below we’ve broken down the basic distinctions between a few different avenues for retirement investment.
- 401(k): A retirement account through your employer that allows you to contribute money from your paycheck. In some cases, the employer often matches all or part of your contribution.
- Roth IRA: A retirement account that you can create on your own or through your employer that can be withdrawn without being taxed.
- Traditional IRA: The same as a Roth IRA, except the money is taxed when you withdraw it.
Both the traditional and Roth IRA routes have contribution caps (you can contribute more if you’re age 50 or up). The benefit of both IRA accounts is in not being beholden to an employer, and you can also invest in both a Roth IRA and a 401(k) at the same time. If you work for a nonprofit, your investment options might be a bit different than those listed above, so be sure to research exactly what the benefits of your retirement plan are if offered by an employer.
Max Out 401(k) Contributions If You Can
If your job allows you to contribute to and matches contributions to your 401(k), it’s wise to contribute as much as you can.
While it will take more from your paycheck each month, it also means that your employer is putting more money into your retirement from the get-go. Reaching your retirement goals will come about a bit earlier if you make other parties invest in your future, rather than relying entirely on your own savings.
Even better, the IRS allows more money to be contributed to a 401(k) than, say, an IRA account, and the income you do contribute won’t be taxed like the rest of your salary. so you’ll be able to save more money in the long run.
Explore Different Investment Avenues
Beyond standard retirement contributions, there are ways to invest in your future that will also allow you to expand your investment portfolio and maybe even build credit.
Mutual funds are sometimes connected with your 401(k) account and contain a variety of different investments like stocks that will hopefully allow you to make some money over time.
Individual stocks can also be used to contribute to a retirement fund. If you’re concerned about investing risks, chat with a financial planner to see what kind of risk tolerance you have and how developing a portfolio could stand to increase or decrease your pre-retirement income and savings.
Be Forward Thinking
This last tip is a bit more nebulous, but avoiding thinking about a retirement plan altogether can leave you unprepared. It’s hard to grasp, but thinking critically about where you want to be at age 50, age 60, and onward is important if you want to feel empowered to make changes in your spending and saving habits.
Hiring a financial adviser or asking older relatives for advice can be beneficial in making the wide world of retirement planning a little more palatable. Don’t hesitate to reach out to people and do research! The more steps you take now, the better off you’ll be in the long-term, even if it’s as small as putting aside $25 a month to start.