Whether you’re 20 years old or 60 years old, you should be saving for retirement. It’s something most of us know we should do, yet we have not started or are not taking advantage of saving opportunities.
However, you can still make a difference in your retirement savings by starting to save today. If this is something you have put on the back burner, get started now and begin preparing for your future.
What are the best ways to save for retirement?
One of the best ways to save for retirement is through tax-deferred accounts such as Individual Retirement Accounts (IRAs) and 401(k) plans, which are employer-sponsored. Deferring taxes on the money you save and the returns you earn within such an account earns you more over time – an enormous advantage over typical taxable accounts. Tax deferral means you save pre-taxed income, temporarily avoiding the usual income taxes until you start withdrawing the money years later.
These plans can have other advantages to consider, such as an employer matching a percentage of employees’ 401(k) contributions.
How much should I save for retirement?
Retirement planning begins by imagining the lifestyle you want when your working days are over. Begin by estimating future expenses. Ask yourself questions such as where you want to live and what your monthly budget would look like. Then, create a savings plan to build and manage your assets to meet those goals.
For most people, retirement savings should replace 70 percent to 90 percent of your annual pre-retirement income through a combination of savings and Social Security benefits, according to personal finance experts. To get you there, select stocks, bonds and other assets through your retirement plan that are likely to gain more value over time. Experts recommend investing 10 percent to 20 percent of your income each year in your retirement savings and reviewing your plan every year to make sure you’re on course.
What if I need help to decide what to invest in for my retirement savings?
If you need advice on how to reach your financial goals, look for a certified financial planner. Be aware, anyone can call themselves a financial adviser, but the title
alone does not mean the person is a certified professional who has the education and experience to help you. Here are some things to consider when looking for a financial planner:
- Services: Determine what you are looking for – investment advice, long-term planning, insurance recommendations or other guidance.
- Cost: Understand costs and fees before you commit.
- Qualifications and standards: Review the record of the company and person you are considering. A certified financial planner has met the standard of the national certified financial planning board and has the CFP professional designation.
- Interview: Ask your prospective planner these
o Are you a fiduciary (those who work in the best interest of clients)?
o How are you paid?
o What are your all-in costs (additional fees)?
o What services are included?
o How will our relationship work (how much access will I have to the adviser)?
o What is your investment philosophy?
o What asset allocation will be used?
o Who is your custodian (ideally an independent, such as a brokerage)?
o What investment benchmarks do you use?
o What taxes can I expect if I invest with you (what do I keep after fees and taxes)?
Is it ever too late to start saving for retirement?
Although most of us have heard that the time to start saving for retirement was yesterday, it really is never too late to start, especially if you know how to take advantage of saving opportunities. Here are a few:
- If you are ages 50 or older, you can make catch-up contributions toward retirement. An extra $1,000 per year can be invested in a traditional or Roth IRA and an additional $5,000 per year in a 401(k) plan.
- Compound interest can still work for you, but it still pays to start as early as possible.
- You don’t have to retire at age 65 – if you are healthy and enjoy your job, you can work longer. Part-time work is also an option.
Knowledge is power. Once you address these items — and get the right financial professional and retirement plan in place — you can get back to dreaming about your retirement without fear of what
the future might bring.