Retirement Planning – Just Starting To Save?

Saving for retirement may not seem like an urgent task if your golden years are far in the future, or if you’ve heard others lamenting about frustrating financial downturns. But the sooner you start saving, the better, because your money will have more time to work for you and potentially grow.

Start Simple

Your goal is to save 10 percent of your income every year. If that seems impractical, start small and make saving a habit.

Most financial experts agree that the key to saving is paying yourself first. To accomplish this, look at what’s left over each month after paying bills and decide how much you can dedicate to savings. The exact amount is up to you, but keep in mind your end goal of saving 10 percent per year. Even if you begin by setting aside less than this, you’ll still be better off than if you’d saved nothing.

Some people pay themselves by physically writing out a check, payable to themselves, and depositing it in the applicable savings account or plan. While this method may be tried and true, today’s electronic world offers much easier options. Consult with your bank, employer or financial advisor about arranging automatic contributions, and you’ll never have to see the cash you’re contributing – or miss it.

Assess your savings progress after a couple of months. If you’re easily meeting the goal you set and not thinking twice about not having that money, consider boosting your contribution by 1 percent. Then, schedule a date once or twice a year to reassess and possibly raise your savings contribution again.

On the other hand, if you’re struggling to save the initial amount, or even to pay your monthly bills, take a hard look at your entire financial situation. Do you have unnecessary spending you can eliminate? Paying bills and saving for your future should trump eating out, premium cable, or designer denim. Plus, such luxuries may mean more when they’re a reward and not the norm.

Where To Save

There are many tax-advantaged ways to save for retirement, with 401(k) plans and IRAs being the most common.

An employer-sponsored retirement plan, such as a 401(k), may be your first consideration. Most companies will allow you to have contributions deducted directly from your paycheck, making regular investing seamless and easy. In addition, some employers will match 401(k) contributions, up to a certain percentage of your compensation or a specific dollar amount. If your employer provides a match, work diligently to contribute the maximum amount that your employer will match. Otherwise, you’re essentially turning down free money for your retirement.

Your employer may not offer a retirement plan, you may not be eligible yet, or you may not receive matching contributions. If this is the case, consider opening an individual retirement account (IRA). You can choose either a Traditional IRA or a Roth IRA. Your money will grow tax-deferred, and your earnings are exempt from federal income tax until you begin withdrawing money for retirement. Both IRAs have yearly contribution limits of $5,000 ($6,000 for those age 50 or over).

Really have a handle on your savings? Open both a 401(k) and an IRA. You can contribute up to $5,000 to an IRA even if you also participate in a retirement program through work, although contributions may not be tax deductible. You may wish to contact a tax advisor regarding your personal situation.

Establish An Emergency Fund

While you’re saving for the future, don’t forget about the present. An emergency fund is essential for unexpected expenses.

Financial experts recommend setting aside three to six months of your net income (take-home pay) or expenses. Store this money in a separate interest-bearing savings, checking, or money market account to make sure the money is easy to access should you need it quickly.

Don’t Delay

Whatever your savings plan, don’t put it off. The sooner you start saving, the more money you’ll likely have for retirement – and the easier it will be to make saving a priority.