How are you doing with your retirement savings? The most important first step is to start making contributions to your retirement savings as early as possible. Using a retirement calculator, if you contribute as little as two hundred ($200) dollars a month at twenty-two years old, you will have one million four hundred thirty ($1,430,000) dollars at sixty-five (65) years old using a growth investment style.
Saving for your future is always important! Whether you are saving for a down payment on a home, buying a car, children’s education or retirement, you need start early. You may want to work forever, rent vs. own, use public transportation vs. owning a car, and never having children. Retirement is a choice, but this last recession shows us that you may be unemployable because of other reasons. You need to have savings for these possibilities.
Others may want to retire early or start a business. Both situations require savings to make the transition. A good rule of thumb is to save at least ten (10%) percent of your annual earnings in a retirement account. If you contribute four hundred ($400) dollars per month at twenty-two (22) years old, you will have two million eight hundred sixty ($2,860,000) dollars at sixty-five (65) years old if the market performs on average. This represents approximately ten percent (10%) of a beginning salary of fifty thousand ($50,000) dollars without any increases.
Wealth provides choices! You may feel that you want to work forever, but things may change over the next forty (40) years. By saving for retirement whether you retire or not, you have choices to retire, work part time, or retire completely. There are more combinations or choices which you may seek just because you have savings and met your retirement goals. I have heard all the excuses such as retirement is so far away, I can catch up after I pay off my student loans or I do not have enough to save and invest.
Realistically, there is no great time to start savings because there are so many reasons not to start. You can start small and add more money later. Often your employer provides an incentive for you to contribute to the company 401(k). If you do not take advantage of the matching, you are literally leaving money on the table. Even if there is no incentive, you should participate because you are contributing pretax dollars and you only pay taxes when you withdraw it in retirement when you are in a lower tax bracket.
The longer you are in a 401(k) or IRA, the better! Time can cure stock market fluctuations, provides more time to grow and more time to contribute. Over the history of the stock market, the return has been fairly consistent in the eight (8) to ten (10) percent range. Of course, when you enter the market has a significant effect on your returns, but time will even help that. You can invest more aggressively in the beginning when you have forty years to retirement.
Many people graduate college with student loans and there is a desire to pay down the loans before you think about saving for retirement. Unfortunately, paying off your student loans takes years and you are losing valuable time in your retirement accounts. It is far better to contribute something to your retirement savings early and add more as you get increases or promotions. Make savings a priority! Goal setting requires a plan. It is much easier to achieve a goal that is specific, measurable, attainable, realistic and timely (SMART).
Planning for retirement is much more than just figuring out how much you need to retire. How long will you live and when do you want to retire? Will you work part time in retirement? Do you plan on moving to a lower cost of living state or country? In either case there are front end costs to moving and you should check it out while you are still working. Better yet, take steps to test out this goal when you vacation or travel. These can be expensive mistakes if you do not prepare for them.
Any long range (more than a year) plan requires checkpoints. These are milestones where you can evaluate your asset allocation and you can determine if you are still on target to achieve your goal. Let’s face it, things change! The stock market may have a bad year or two. You could lose your job, start a business, divorce marries or some other change. Evaluating your retirement goals at least annually is necessary and should be done the same time each year.
Should you get a financial adviser? I think it is a personal decision. I think you should use a retirement calculator to determine your goal and measure your progress to the goal against that goal. You may even want to adjust your goal based on higher or lower income and other factors. Your retirement goals are very personal and should meet your idea of retirement. If you have a spouse, she or he should be involved in the planning.
If you do not know what the goal is, you cannot work toward it! In order to establish your retirement goal, you must do some planning. Part of the planning is using a retirement calculator to figure out how much you need in retirement. There are two additional elements, one is how long you think you will live and how you want to live in retirement. There is a lot of things to learn and understand to plan for retirement. You could rely on a financial adviser, but you should understand your goals. How are you doing with your retirement savings?
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