Advertising
Advertising

How To Start Saving Early For Retirement

How To Start Saving Early For Retirement

Many young people don’t think about starting a retirement fund because retirement is decades away. However, in order not to overwhelm yourself when you’re older, it’s a sound idea to start saving now. You can start small, so that your savings will grow over time. You can also start to increase your savings as your income increases. Follow these tips to secure your financial future.

Know Your Retirement Needs

The first thing to know about retirement is that it’s expensive. But don’t worry too much, because for young adults, it’s still quite far away. However, this doesn’t mean that you avoid saving now. You need at least 70 percent of your pre-retirement income to maintain your standard of living when you stop working.

To set benchmarks of what that amount will look like, you should save one times your current salary by the time you’re age 35. By the time you’re 45 you should save three times your current salary, and by the time you’re 55, you should save five times your current salary. You should have eight times your ending salary by the time you retire.

Advertising

Start Contributing to Your Retirement Fund Now

Even if you still have debt you’re paying off, like student loans, it’s important to start saving for retirement. Young people should be saving for retirement simultaneously with paying down debt. It may seem impossible, but your secure financial future is just as important as becoming debt free.

See if your company has a 401(k) plan. Most employers pay 50 cents for every dollar you put toward your retirement savings, up to the first six percent of your salary. It’s a 50 percent return. Money in 401(k) or IRA benefits from a lifetime of tax-free compounding.

If your company doesn’t have a retirement fund, use a Roth IRA, instead. You fund it with the money that’s already been taxed as part of your normal paycheck, but when you withdraw it later, it’s tax-free.

Advertising

Find Ways to Save

Find small ways to save money and budget for your current income. Little lifestyle changes, like making coffee at home instead of getting a cup of coffee at a coffee shop can save you almost $100 a month. When you bring your own lunch to work, you save almost $10 a day. Look to create a budget that will regulate your spending in different categories, including food, entertainment, gas, utilities, rent, and so on.

If you’re paying off student loans, opt for income-based repayment of your federal student loans instead of a standard plan. It can help — if you make $50,000 and owe $30,00, for example, you’d reduce payments by $68 a month.

Don’t Overwhelm Yourself

For savings and retirement fund contributions, start small. Contribute a modest amount and then increase yearly, and as your income increases. Start by contributing three percent of your salary, then bump it up by a percentage point a year until you’re up to the recommended savings rate of 10 percent.

Advertising

Invest in Stocks, Bonds, and Annuities

Investments are a smart way to make money on your money. Stocks typically grow at an annual clip of 10.4 percent, while bonds historically return 5.4 percent a year. Be aggressive and put 90 percent of your investments in stocks, interchangeably referred to as equities.

Hedge against risk of loss by diversifying your investments to own as many different types of stocks as possible. Life-cycle mutual funds make it easy for novice savers to buy a diversified array of stocks that are tailored to their age and retirement goals.

There are other retirement specific investments to look into as well. Annuities are financial products sold by financial institutions designed to accept and grow funds from an individual. Upon annuization, the annuity pays out a stream of payments to the individual at a later point in time (usually retirement). They’re used to secure a steady cash flow for an individual during retirement. To calculate possible annuity amounts, use the annuity calculator.

Advertising

Hybrid annuities are becoming increasingly popular. In essence, hybrid annuities are insurance contracts where buyers can use fixed and variable annuity components to allocate funds. They’re a fixed index annuity with one of the newer, more innovative income riders. They resolve the concerns about asset growth and retirement income, like long-term care funding or wealth transfer to heirs, while still providing the owner with a secure income.

 

Retiring doesn’t have to be scary or overwhelming if you start saving early. Don’t end your career depending on social security to support you. Continue your standard of living well into your older years, and enjoy your retirement.

More by this author

How To Start Saving Early For Retirement

Trending in Money

1 How to Use Credit Cards While Staying Out of Debt 2 How to Use Debt Snowball to Get out from a Financial Avalanche 3 How Personal Finance Software Helps You Get More Out of Your Money 4 The Best Ways to Save Money Even Impulsive Spenders Can Get Behind 5 How to Answer the Tough Question: What are Your Salary Requirements?

Read Next

Advertising
Advertising
Advertising

Last Updated on March 4, 2019

How to Use Credit Cards While Staying Out of Debt

How to Use Credit Cards While Staying Out of Debt

Many people will suggest that the best thing to do with your credit cards during these tough economic times is to cut them up with a pair of scissors. Indeed, if you are already in huge debt, you probably should stop using them and begin a payback strategy immediately. However, if you are not currently in trouble with your credit cards, there are wise ways to use them.

I happen to really love my credit cards so I will share with you my approach to how I use mine without getting into deep financial trouble.

Ever since about 1983 when I got my first Visa card, I continue to charge as many of my purchases as possible on credit. Everything from gas, groceries and monthly payments for services like my cable and home security monitoring are charged on credit. Despite my heavy usage, I have maintained the joy of never paying any interest fees at all on any of my credit cards.

Advertising

Here are some tips on how best to use your credit cards without falling into the trap of paying those nasty double-digit interest fees.

Do Not Treat Credit Cards as Your Funding Sources

Too many people treat their credit cards as funding sources for major purchases. Do not do this if you want to stay out of trouble. I use my credit cards as convenient financial instruments so I do not have to carry around much cash. In fact, I hate carrying cash, especially coins. When you buy things on credit, the purchases are clean and you will not get annoying coins back as change.

I do not rely on my Visa, MasterCard or American Express to fund any of my purchases, large or small. This brings me to my golden rule when it comes to whether I will pull out any of my credit cards either at a retail or online store.

Advertising

I never purchase anything with my credit cards if I do not have the actual cash on hand in my bank account.

If I really cannot pay for the item or service with cash that I already have at the bank, then I simply will not make the purchase. Remember, my credit cards are not used as funding sources. They are just convenient alternatives to actual cash in my pocket.

Make Sure to Always Pay Off Balances in Full Each Month

The next very important part of my overall strategy is to make absolutely sure that I pay the balances in full each and every month no matter how large they are. This should never be a problem if the cash has been budgeted for my purchases and secured in the bank. I have always paid my full balances each month ever since my very first credit card and this is why I never pay interest charges.

Advertising

Using Credit Cards with Rewards

Most of my credit cards are of the “no annual fees” type, including one MasterCard on a separate account I keep at home as a spare in case I lose my wallet or incur any fraudulent charges. However, I do use a main Visa card which does have an annual fee because all purchases on that card reward me with airline frequent flyer points. For me, the annual fee is worth it since I do travel and I get enough points to redeem many free flights.

You have to decide for yourself if you will charge enough purchases on credit each year without paying interest charges to warrant a credit card that rewards you with airline points (or other rewards). In my case, the answer is “yes” but that might not be the case for you.

I occasionally use a MasterCard or American Express card on small purchases just to keep those accounts active. Also, I have been to the odd retailer that accepted only a certain type of credit card, so I find that having one from each major company is quite handy. Aside from my main Visa card which earns the airline points, the rest of my cards are of the “no annual fees” variety.

Advertising

So this is how I use my credit cards without getting into any financial trouble with them. This strategy is recommended only if you are not in debt, of course. In fact, it is worth keeping in mind once you’re out of debt so that you can keep your credit cards active and treat them responsibly.

What are your credit card usage strategies? Let me know in the comments — I’d love to hear what methods you use.

Featured photo credit: Artem Bali via unsplash.com

Read Next