Whether you’re in your 20s, 30s, 40s, or 50s, the perfect time to start saving for retirement is as soon as possible. Now, if you’re currently drowning in debt (like I was a few years ago) or if you don’t have a good budgeting strategy in place, you may have a few steps to take first. It’s hard to think about the future when you’re struggling to make ends meet. Trust me — I know from experience!
But once you have a better handle on your finances, it’s good to start looking ahead. If you feel like you’re behind the curve when it comes to building a nest egg, you’re not alone. Around 25% of non-retirees have zero money saved for retirement according to the Federal Reserve.
Thankfully, it’s never too late to start saving for the future. Here are four smart tips you can use to plan for retirement as soon as you’re ready.
1. Incorporate retirement savings into your budget.
I’m a firm believer that your budget is the most important tool you can use on your financial journey. It helps you figure out what matters most to you and gives you a roadmap to reach your goals.
Without a budget, you’ll constantly feel frustrated about money like I used to feel in the past. To make matters worse, you probably won’t be able to afford the things that matter most to you (like saving for retirement, buying a home, or saving for your children’s education).
When you’re ready to start planning for retirement, it’s critical to include this goal in your budget. For example, maybe you want to save 10% of your income initially for the future. Calculate the amount and add it to your budget as a monthly expense. If you don’t include retirement savings in your monthly financial plans, it will probably never happen.
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Want to boost the amount you’re saving for retirement even more? You can use some cost-cutting strategies to free up more cash in your budget. Anyone who knows me knows that I’m a huge fan of saving money. Spending less on things you don’t really need gives you the power to reach your financial goals sooner. Check out this list with 30 of my favorite out-of-the-box ways to save money.
2) Take advantage of your employer's retirement savings plan.
A 401(k), if your employer offers it, is one of the best places to start building your retirement nest egg. These tax-advantaged savings plans let you tuck away money for retirement off the top of your paycheck (aka your gross income). You don’t pay taxes until you withdraw the funds in the future.
The federal government limits how much you can contribute to your 401(k) each year. For 2020, the contribution limit for employees is $19,500.
Many 401(k) plans feature something known as an employer contribution match. If your employer offers this perk, it will deposit a certain amount of money into your 401(k) fund based on how much you invest. For example, an employer might:
- Contribute $0.50 into your retirement savings plan for every dollar you invest, up to 6% of your salary.
- Contribute one dollar into your retirement savings plan for every dollar you invest, up to 3% of your salary.
An employer match is free money that can help your retirement savings grow faster. So, if you have access to this perk and you can afford to bring home a little less cash each paycheck, you should strongly consider taking advantage of it.
3) Consider adding on an IRA.
A 401(k), especially one that offers an employer match, is a great way to help prepare for retirement. But there’s more than one way to save for your golden years. An IRA could be a useful addition to your retirement savings plan as well.
- Traditional IRA: A Traditional IRA is probably the most well-known type of retirement account. With Traditional IRAs you can deposit tax-free contributions now and pay taxes later when you make withdrawals.
- Roth IRA: A Roth IRA is another type of retirement account. With Roth IRAs you pay taxes on your contributions upfront. You don’t, however, pay taxes again when you withdraw funds in the future.
For the year 2020, the IRS will let you contribute up to $6,000 into all of your Traditional and Roth IRAs combined. If you’re over 50 years old, the maximum contribution amount increases to $7,000.
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Already have a 401(k) or IRA? A free analysis from Bloom can help you see how your investment accounts stack up.
4) Make your savings automatic.
With any savings goal — retirement or otherwise — setting your savings on autopilot can help. Even non-retirement savings can be easier to keep up with if the money comes directly out of your bank account each month.
CIT Bank offers an automated savings option with its Savings Builder account — plus a higher interest rate on your balance than you may be able to earn elsewhere.
With a 401(k) you can schedule an automatic draft of a specific percentage of each paycheck. The drafted funds go directly toward your retirement contributions. Most IRA plans let you schedule automatic contributions from your bank account as well.
Automated savings can help you make specific financial goals a priority. Plus, it’s harder to accidentally spend the money on something else if the funds have already come out of your paycheck or bank account.
It’s okay to start small when it comes to retirement savings if that’s all you can afford right now. You can always ramp up your retirement savings efforts in the future when your budget allows. But you shouldn’t wait until you’ve reached all of your other financial goals (like saving for your children’s college fund or paying off your mortgage) before you get started.
You should also aim to eliminate certain types of debt before you retire as well. Being in debt can make it hard to save for retirement. Debt can also make your budget much tighter once you stop working full time.
Finally, remember that it’s okay to ask for professional help if you need it. A fee-only certified financial planner (CFP) may be able to answer specific questions you have about your finances and help you build a customized retirement plan to reach your future goals.