Retirement Saving 101: When and How Should You Start?
Are you looking for ways to save towards a better and brighter future? Do you want to start putting money away so that you can retire easily when the time comes? If so, then you need to learn all you can about retirement saving.
Doing so can help you create a plan of action. You’ll learn all about how to start saving, when you should start (now is the answer), and how you can defy the odds of the average retirement savings plan.
See below for more information on how you can compile your retirement savings and create a better life down the line.
1. Start by Paying off Debt
Debt is like a shadow that you can’t get rid of. As the financial guru, Dave Ramsey, puts in his book Total Money Makeover, Debt is like a cheetah that’s chasing down a gazelle. It’s faster and more ferocious.
However, Cheetahs can only run for so long before they have to stop for a breather. That means that, with some clever maneuvering, the gazelle can wear the cheetah down and escape. That’s the plan you should have when paying off your debt.
Building a retirement saving plan without actively paying off your debt is a bad idea. You won’t be financially free until you get rid of all the compounding debt you may have.
Thankfully, it won’t take you long to do so. There are clever ways to quickly pay off debt, such as Ramsey’s debt snowball concept, which can help you become debt-free in two years or less!
Once you’ve rid yourself of the heavy debt holding you down, you can put more towards retirement and generate better and quicker results than if you’d done so while trying to pay off debt at the same time.
Take it from the other millions of Americans slowly putting off their debt; it doesn’t work. Pay it off and be done with it!
2. Have the Right Mindset
Did you know that the average American will make $2 million or more during their professional careers? That’s a lot of money. Why doesn’t it feel like that for most people? Because of the aforementioned debt that’s holding them back.
As soon as some people see the projections for saving millions of dollars by the time they retire, a common misconception forms in their head: they think they’ll be rich once they retire.
Spoiler alert: if you weren’t rich before you retired, you won’t be rich after you retire. That’s not the goal here.
Instead, the goal should be to save up enough for your retirement so that you can continue to live within your current means. So if you live off of $4,000 per month now, you’ll want to save enough to where you can live off the equivalent of $4,000 per month (with inflation factored in) once you retire.
For all of you that are wondering when you should start income planning tactics, the answer is right now. The good news is that it’s never too late to start saving for retirement. You may just need to be more aggressive if you’re starting your savings later in life.
3. Know Your Timeline
Have you ever taken the time to ask yourself when you want to retire? Most people just assume that it’s around the 65-year mark for them. But that might not be the case depending on how much (or how little) you’ve saved up to that point.
Knowing your timeline can benefit you greatly. It can also help you and your financial advisor make sense of your income planning. The amount you should be saving depends on this equation:
(Your target retirement age) – (Your current age) = number of years left to save
From there, your financial advisor can calculate your target number for retirement. The equation then becomes:
(Your target number for retirement) Ã· [(Number of years left to save) Ã· 12 (months)]
That’s the amount that you’ll have to put towards your retirement accounts of choice to save up for your target number.
4. Know Your Options
Regardless of what age you start saving for retirement, it’s important to know what tools you’ll use to build up compound income over time.
The first place that you should look is always through your employer. They might have an offer to match your contributions (up to a certain percentage), which is free money for you.
Always take the time to learn about 401(k)s, 403(b)s, 457(b)s, or Pension plans that your employer offers. If you’re a freelancer or entrepreneur, you can take advantage of an IRA or Roth IRA, which has tax implications as well!
5. Find a Professional Planner
We all need accountability when it comes to finances. When life hits hard, you’ll always be tempted to allocate the money you’re saving towards retirement to fill those emergencies.
In those situations, you need someone willing to slap you on the wrist and say “no!”. More importantly, you need someone that can help you stay on track.
A financial planner will be a tremendous adversary as you build towards retirement and all other financial goals that you might have. Be sure to find yourself a good one!
Start Your Retirement Saving Journey Today
Now that you have seen an in-depth guide on retirement saving and everything that you should be considering, please be sure to use this information to your advantage.
Take the time to consider where you’re starting from. Go to your employer first and see if they offer any matching contributions. This can help you get the ball rolling.
Be sure to browse our website for more articles on retirement savings, as well as many other topics that you will find helpful.