Have you ever felt your retirement savings is a living manifestation of the expression “two steps forward and one step back”? Many have experienced this type of financial anxiety. While you probably feel like throwing in the towel and jumping a plane to Borneo, take heart in knowing it’s never too late! Small steps made today have the potential to lead to more substantial steps years to come. Start by focusing on what you can do now, whether you’re in your early 20’s or late 50’s. In doing so, you’ll find each little step gets you all the closer to reaching your retirement goals regardless of setbacks.
In your 20’s
Create a budget and make retirement savings a priority. Even though you may be stretching your budget as it is, find something small you can live without. Cut it out of your budget and throw the savings into a retirement account. A nice rule of thumb is to save 10% - 15% of your gross pay for retirement. It may seem like a lot, but a recent study by MoneyRates.com revealed those in their 20’s are 66% more likely to reach retirement by age 60 than those who waited until their 30’s to begin saving. While saving 15% of your pay for retirement may seem like a fortune, you have time on your side and that is 100% FREE!
In your 30’s
Start saving outside of work. If you’ve maxed out your 401k or other employer-sponsored retirement fund, consider establishing a Roth IRA. This type of retirement vehicle allows for more flexibility than traditional retirement accounts. Additionally, it allots for potentially larger tax breaks later on in life. Unlike a traditional IRA, contributions are made with after-tax dollars. As long as the deposits have been held five years after opening the account, any withdrawals (after age 59 ½) are tax free. Assuming your income will likely be higher than in your 30s, this tax break could be more valuable to you down the road than it would be now.
In your 40’s
Meet with a CERTIFIED FINANCIAL PLANNER™. Consulting an expert before tackling complicated financial decisions is key towards a sound retirement. If you haven’t already, now is the time to sit down with an expert who will evaluate your progress and create a financial plan encompassing everything touching your financial life. To receive advice, without having to worry if someone has your best interests at heart, consider meeting with a fee-only CERTIFIED FINANCIAL PLANNER™.
In your 50s
Take advantage of the catch-up rules. Beginning the year you turn 50, the IRS will allow you to make catch-up contributions to your retirement accounts (in 2016 an extra $6,000 in your 401(k) and another $1,000 in your IRA). If you’re thinking, ‘how will those small amounts ever make a dent?’ Keep in mind you’re contributing to tax-deferred savings accounts. They will compound much more quickly than a run-of-the-mill savings account. Additionally, even if you retire in the next year or two, your retirement longevity is likely to run upwards of 20 years. Combine those two niceties and you have sufficient time to see growth within your investments during retirement.
“You can’t have a better tomorrow if you are thinking about yesterday” - Charles Kettering