No matter what age you are, it’s never too late or too early to start saving for retirement.
The key points:
- It’s not too early or too late to start saving for retirement
- If you are just getting started focus on saving as much as you can
- If you are nearing the retirement age, consider increasing your contribution towards retirement savings.
Every financial advisor will tell you that the earlier you start saving the better for you, you will experience the power of compound interest.
However if you are just starting, it is ok since there are measures you can take to increase your retirement savings.
How to start saving for retirement- Focus on starting now
If you are just beginning, you need to focus on saving and investing for retirement now as much as you can so that the ability of compound interest can work in your favour.
Compound interest is the ability of your assets to generate earnings, which are reinvested to generate their own earnings .
If you start to save for retirement early, then you will comfortably be able to save small amount of money for a long period of time.
Example: If you start at age 25 you can start saving atleast $70 every month and you will have accumulated more assets at age 65 than investing $100 per month at age 40 .
What this means is that investing a smaller amount over a long horizon period could have bigger impact on investment that investing a larger amount over a short period of time.
Contribute towards your 401(K)
If you are eligible to the offer of your employers traditional 401(k) plan then you can take advantage of pre-tax money contribution .
Since that money comes out of your paycheck before other taxes are done, your income will drop by small margin which means you can be able to invest more of your income without feeling the pressure on your monthly budget.
The good thing about this contribution is even if you leave that employer you are still eligible to the total contribution done by your employer and yourself.
Take advantage of employers match
If your employer offers to match your monthly contribution then i would advise you take advantage by increasing your contribution.
Most employers match their employees contribution by 50% upto 5% of their salary, if you contribute example $2000 yearly your employer contributes $1000. If you are eligible contribute more then top up and your employer will top up too.
Open an Individual Retirement Account
A individial retirement account is great to help you boost your retirement savings.
An individual retirement account (IRA) allows you to save money for retirement in a tax-advantaged way. An IRA is an account set up at a financial institution that will allow you to save for retirement with tax-free growth or on a tax-deferred basis.
Individual taxpayers can establish either traditional and Roth IRAs, while small-business owners and self-employed individuals set up SEP and SIMPLE IRAs. An IRA must be opened with an institution that has received Internal Revenue Service (IRS) approval to offer these accounts.
Choices include banks, brokerage companies, federally insured credit unions, and savings and loan associations.
Visit SuperMoney’s tools to help you compare and filter savings accounts suitable for you
Contribute more in Catch up Contribution if you are of age 50 and above
Normally if you are below 50 your monthly contribution is limited but ones you hit 50 you are allowed to contribute more. You can take advantage of this and increase your contribution, remember your employer will match which translates to a higher retirement savings.
Check on your spending
When you begin to save for retirement you you need to also begin checking on your spending, don’t waste money on unnecessary things , create a budget and let it guide your spending.
See how to save money on any income
Stash your extra cash
Ones in a while we get bonus at work, an increment which if not well planned for could go to waste. You can treat your self well and then channel the extra funds towards a retirement investment to generate more income for you.
Automate your saving
It is said that you should pay yourself fast. Create an automatic debit from your account to the savings account.
Doing so means your savings comes at the top of your monthly bills and you will never feel like you are actually paying a bill while saving for your retirement.
Create a goal
You need to come up with a goal, a plan that will keep you focused, where do you want to retire at? Do you need to buy a farm and retire there? Having a goal will help you stay on track and top up when you have the chance
Conclusion
These tips on how to start saving for retirement are applicable at any age, the earlier the better but if you haven’t started. It’s time you do.