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How To Start Saving Early For Retirement

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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.

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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.

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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.

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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.

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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.

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Last Updated on January 5, 2022

33 Painless Ways to Save Money Now

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33 Painless Ways to Save Money Now

In a difficult economy, most of us are looking for ways to put more money in our pockets, but we don’t want to feel like misers. We don’t want to drastically alter our lifestyles either. We want it fast and we want it easy. Small savings can add up and big savings can feel like winning the lottery, just without all of the taxes.

Some easy ways to save money:

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  1. Online rebate sites. Many online sites offer cash back rebates and online coupons as well. MrRebates and Ebates are two I like, but there are many others.
  2. Sign up for customer rewards. Many of your favorite stores offer customer rewards on products you already buy. Take advantage.
  3. Switch to compact fluorescent bulbs. The extra cost up front is worth the energy savings later on.
  4. Turn off power strips and electronic devices when not in use.
  5. Buy a programmable thermostat. Set it to lower the heat or raise the AC when you’re not home.
  6. Make coffee at home. Those lattes and caramel macchiatos add up to quite a bit of dough over the year.
  7. Switch banks. Shop around for better interest rates, lower fees and better customer perks. Don’t forget to look for free online banking and ease of depositing and withdrawing money.
  8. Clip coupons: Saving a couple dollars here and there can start to add up. As long as you’re going to buy the products anyway, why not save money?
  9. Pack your lunch. Bring your lunch to work with you a few days a week, rather than buy it.
  10. Eat at home. We’re busier than ever, but cooking meals at home is healthier and much cheaper than take-out or going out. Plus, with all of the freezer and pre-made options, it’s almost as fast as drive-thru.
  11. Have leftovers night. Save your leftovers from a few meals and have a “leftover dinner.” It’s a free meal!
  12. Buy store brands: Many generic or store brands are actually just as good as name brands and considerably cheaper.
  13. Ditch bottled water. Drink tap water if it’s good quality, buy a filter if it’s not. Get 
      a reusable water bottle and refill it.
    • Avoid vending machines: The items are usually over-priced.
    • Take in a matinee. Afternoon movie showings are cheaper than evening times.
    • Re-examine your cable bill. Cancel extra cable or satellite channels you don’t watch. Watch the “on demand” movie purchases too.
    • Use online bill pay. Most banks offer free online bill paying. Save on stamps and checks, and avoid late fees by automating bill payment.
    • Buy frequently used items in bulk. You get a lower per item price and eliminate extra trips to the store later on.
    • Fully utilize the library. Borrowing books is much cheaper than buying them, but in addition to books, most local libraries now lend movies and games.
    • Cancel magazine/newspaper subscriptions: Re-evaluate your subscriptions. Cancel those you don’t read and consider reading some of the other publications online.
    • Get rid of your land-line. Do you really need a land-line anymore if everyone in the family has a cell phone? Alternatively, look into using VOIP or getting a cheaper plan.
    • Better fuel efficiency. Check the air pressure in your tires, keep up with proper auto maintenance, and slow down. Driving even 5MPH slower will result in better fuel mileage.
    • Increase your deductibles. Increasing the insurance deductibles on your homeowners and auto insurance policies lowers premiums significantly. Just make sure you choose a deductible that you can afford should an emergency happen.
    • Choose lunch over dinner. If you do want to dine out occasionally, go at lunchtime rather than dinnertime. Lunch prices are usually cheaper.
    • Buy used:  Whether it’s something small like a vintage dress or a video game or something big like a car or furniture, consider buying it used. You can often get “nearly new” for a fraction of the cost.
    • Stick to the list. Make a list before you go shopping and don’t buy anything that’s not on the list unless it’s a once in a lifetime, killer deal.
    • Tame the impulse. Use a self-enforced waiting period whenever you’re tempted to make an unplanned purchase. Wait for a week and see if you still want the item.
    • Don’t be afraid to ask. Ask to have fees waived, ask for a discount, ask for a lower interest rate on your credit card.
    • Repair rather than replace. You can find directions on how to fix almost anything on the internet. Do your homework, and then bring out your inner handyman.
    • Trade with your neighbors. Borrow tools or equipment that you use infrequently and swap things like babysitting with your neighbors.
    • Swap online. Use sites like PaperBack Swap to trade books, music, and movies with others online. Also, look for local community sites like Freecycle where people give away items they no longer need.
    • Cut back on the meat. Try eating a one or two meatless meals every week or cut back on the meat portions. Meat is usually the most expensive part of the meal.
    • Comparison shop: Get in the habit of checking prices before you buy. See if you can get a better price at another store or look online.

    Remember that saving money is not about being cheap or stingy; it’s about putting money into your bank account rather than giving it to someone else. There are many ways to save money, some you’ve never thought of, and some that won’t appeal or apply to you. Just pick a few of the ideas that sound doable and watch the savings add up. Save big, save small, but save wherever you can.

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    Featured photo credit: Damir Spanic via unsplash.com

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