Even if retirement is still a few years (or even a decade or two) away, there are sound practical reasons to start preparing for it today. If you are in your 20s, or maybe your 30s, don’t think you’re too young. Many adults make this mistake and don’t begin preparing for retirement until they’re well in their 30s. Not that it’s too late, but the longer you wait to put money aside, the less you’ll have when you leave the workforce. And if you talk to financial experts, all recommend early planning.
“It is not recommended to wait until the last minute to get serious about saving for retirement,” says financial professional Robert Karofsky. “In fact, whenever anyone asks me when they should begin retirement planning, I tell them now—or, as early in life as possible.”
The Billionaire founder of American Century Mutual Funds puts it this way, “Don’t wait until the time or the market is just right to start investing– start now. The best time to plant an oak tree was 20 years ago — the second best time is now.”
The United States Department of Labor says the average person will need between 70% and 90% of their pre-retirement income to maintain their standard of living. This might seem like a stretch, but if you start now, a comfortable life post-retirement is possible.
1. Know Your Savings Options at Work
Enrolling in your employer’s 401(k) and contributing a certain percentage of your income to retirement savings is one way to get your retirement account off the ground. Contributions are automatically deducted from your paycheck, and in a lot of ways, this is a retirement savings plan that you don’t have to think about. And if your employer doesn’t offer a 401(k) or pension plan, create your own IRA.
2. Start an Individual Retirement Account (IRA)
An employer-sponsored retirement plan is a good place to start, but don’t stop here. Consider opening an IRA with your financial advisor or bank. Traditional IRAs allow contributions up to $5,500 a year, and $6,500 a year if you’re over the age of 50. Starting an individual retirement account makes sense even if you have a 401(k), as this can help maximize your income during your retirement years. The more cash you have available, the less likely you’ll need to move to cheaper housing or lower your standard of living.
3. Pay Off Your Consumer Debt
It isn’t enough to open different retirement savings accounts, it also helps to get a handle on your consumer debt. It goes without saying that the less you owe post retirement, the better off you’ll be. If you can’t pay off your debts with a full income, how do you expect to do so on 70-90% of your income? Before you retire you should be completely debt free, eliminate your mortgage loan, auto loans and all of your credit cards before retiring. This reduces how much you’ll need after retiring.
4. Don’t touch your retirement savings
Early withdrawal from a 401(k) and IRA is possible, but not recommended. You could get hit with penalties and taxes. Some people take withdrawals to afford a down payment on a house or to survive a job layoff. These are valid reasons, but rather than using your retirement savings as a back up savings plan, work on building your liquid savings.
Retirement can come sooner than you realize, and if you’re relying on Social Security to make ends meet, you may be in for a rude awakening. Learn your retirement options and meet with a financial planner to make sure you’re on the right track.
See Also:
- Reverse Mortgages: A Lousy Investment that May Be a Good Source of Income
- Life Insurance and Annuities: The Secret is the Bottom Line
- How Long Will You Work When You Should Be Retired?
- The Impact of Inflation on Retirement Planning
- Inflation’s Effect on Retirement Savings
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Image “Watching time” by Richard Dudley
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