Saving for retirement is a great and consequential financial goal. If you are new or curious about retirement, there are a few basic ideas that you can start with. To save for retirement, you’ll need to know the basics plus be able to put your plans into action.
How to Save for Retirement
Nearly 75% of respondents to a recent ACCC poll said that they will not be ready for retirement. Concerns ranged from not being able to cover medical expenses to outliving savings or monthly allowances.
It can take hundreds of thousands to millions of dollars to cover retirement, so it’s time to start planning. Where does the planning process start?
Save for Retirement Basics
There are several factors to consider when you start to save for retirement. Here are a few questions to ask yourself when thinking through the kind of retirement you want:
- When do you want to retire?
- What age did you begin investing?
- How well have your investments done?
- Do you want a luxurious or comfortable retirement lifestyle?
- How much inheritance do you want to leave?
- Do you anticipate any medical care?
Once you have a clearer picture of your retirement needs, wants and goals, you will be able to plan accordingly. The more lavish plans you make, the more money you will need to have saved to support yourself.
Generally speaking, the earlier you start to invest, the better due to compound interest. Compound interest is the interest added to the principal so that the added interest also earns interest. And since one-third of adults say that they have not started saving for retirement, there are a lot of folks missing out.
Types of Retirement Savings & Income
Here are a few options for retirement savings and income.
401(k) plans are a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts.
Roth IRA is an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59½ are tax-free.
A pension is retirement income from an investment fund to which that person or their employer has contributed during their careers.
Many financial advisors suggest that a diversified retirement plan is the best way to go. Since markets can crash and government programs may or may not be around, it’s a good idea to come at retirement from as many angles as you can.