Saving for retirement can seem like a daunting task. You may be asking yourself, "How do I know how much money I need to save?" or "What is the best way to save money for the future?". Those are very valid questions, but saving for retirement is not as complex as some people make it out to be. You can begin to take steps now to make your future retirement a breeze.
Retiring is something that people often look forward to during their working years. It's a time to do everything you couldn't do while you had a job. Retirement should be exciting and relaxing but, for many, it can be stressful because they didn't plan ahead. Now is the best time to begin planning for retirement. Whether you're 20 or 50, there are steps you can take to begin the process.
Step One: Create A Retirement Plan
Start by imagining what you want your retired lifestyle to be. Will you want to travel, spend more time with your family, or grow the garden of your dreams in your backyard? Maybe you will want to go out to eat at least three times a week or buy the sports car you've always wanted. Everyone's vision of retirement is different. Whatever it is, you'll need to determine how much money you have to save to maintain your future lifestyle. There are plenty of retirement calculator tools out there to help you figure out how much money you should put aside.
Take into account all of the expenses you have now and what will change over time. Once you retire, likely, you'll no longer be making payments on your mortgage or have expenses relating to your children since they'll be grown. You'll also have new streams of income, such as your social security benefits. Having a holistic view of what your financial situation should be in the future will help you plan for right now. If you're still struggling to figure out how much money you need to save, find a reputable financial advisor to help you.
Step Two: Working Towards Your Plan
Once you have a clear retirement plan, you'll have to put the work in to make your vision a reality. You can do this by setting goals for yourself. Some examples are paying down your debt, beginning to make a monthly budget, or building an emergency fund.
Being debt-free by the time you retire means you won't have to owe money in a time that you're not earning an income. Creating a monthly budget is an easy way to keep track of your current expenses and where your money is going. Knowing how much you spend each month allows you to see where you can cut costs and increase your savings. It also helps you build an emergency fund for surprise expenses such as a major car repair or medical bill. Most experts advise you to have three to six months of your salary in an emergency account.
Step 3: Saving Means Investing
Part of saving is where you will put that money, and investing will help you maximize it. A rule of thumb when it comes to investing is to have a riskier portfolio when you're younger and far from retiring and to have a more conservative portfolio if you're nearing retirement. Either way, it's vital to have a diversified portfolio. Diversification is when you have several different investments like stocks, bonds, commodities, and real estate. Often, stocks are used for growth, either directly or through a fund, whereas bonds are for safety.
There are several different kinds of accounts you can use for your retirement savings. The best place to start is to see if your employer offers a saving plan like a 401(k). Some companies even match your contributions to a certain percentage. If your employer doesn't offer a savings plan, you can look into starting an Individual Retirement Account (IRA). It's also a great option to include in addition to your 401(k). When opening an IRA, there are different options you can choose from - a traditional IRA or a Roth IRA. The best IRA for you will depend on which tax bracket you are in currently and in the future.
Additional Options
There are additional options for those that never put a formal retirement plan in place. A reverse mortgage can be a way for someone above the age of 62 to live out their retirement dreams. Unfortunately, some people can't save money for various reasons but, with a reverse mortgage, they can pay off unexpected expenses, debt, or their grandchildren's college tuition.
The biggest takeaway is that the best time to save for retirement is now. Don't put off something that can make your life easier and more enjoyable in the future.