According to a press release from the Federal Reserve, approximately one out of five individuals near the age of retirement have not saved any money for their future. Basically, 31 percent of the people participating in the study have saved zero money for their retirement fund. This statistic does not bode well for most Americans who will spend an average of 20-25 years in retirement. For those who have successfully been saving for their retirement, a diligent effort has made the process happen. Saving for retirement takes serious commitment along with effective planning. It is a habit that will positively impact your future. This article will address how to save for retirement.
1. Start the Process
Some people are already saving, so preparing for retirement will be a simple process. For those individuals who have not been saving, it is important to get the process started today. Saving will benefit your future and provide that safety net that you need in life. There are no downsides to saving; except for the fact of maybe having to cut some of your spending splurges in order to save more money. For those individuals who are not accustomed to saving, begin the process by setting aside a small amount from each paycheck. If you cannot save money from each paycheck, at least set aside a specific amount once a month.
2. Know Your Specific Goals
In order for your retirement savings to grow, you need to be diligent and stick to your goals. Your retirement savings must become a priority in your budget. It is important to review your current situation and estimate what your retirement future will look like. Fidelity has created a simple method for retirement savings. Basically, they suggest that you save approximately 8 times your salary to increase the probability that you will not outlive your total savings during your approximate 20-25 years in retirement. This calculation may seem intimidating to new savers. However, Fidelity advises that you should have saved one times your salary by the age of 35, three times by 45, and five times by the time you’re 55.
3. Contribute to Your 401(k) Plan
Another important way to start saving for your retirement is to begin contributing to the 401(k) plan through your employer. The more you can contribute to the fund, the better results you will achieve. You can have automatic deductions set up to make the process easier for you to contribute. Some employers also contribute a set amount to the fund. Discuss the specifics of the plan with your human resources manager, as well as with your tax advisor if you have one. Participants receive tax deferrals along with compound interest which adds up to increased accumulations to your retirement account.
4. Follow Basic Investment Rules
Investing for your future can be a daunting task, but it is important to understand the best way how to save. For example, depending on the type of investment you choose and the current inflation level, that will determine the amount of increase in your retirement savings fund. One basic principle is that you are involved in the planning and learn as much as you can about the process and the investment options available to you. A second basic principle is to never put all your eggs in one basket, but diversify your investments. When you diversify, you decrease your risk of investment losses and increase your probability of better returns. Remember that investing is a fluid process. As you age, your goals and financial needs will change. You must ensure that your investments mirror those changes. Investopedia offers a basic online tutorial for those beginners who want to learn successful investment principles.
5. Refrain from Withdrawing Savings
As much as is possible, refrain from withdrawing your savings and various retirement investments. Obviously, there may come a day when you need to tap into your savings to cover financial emergencies. However, remember that if you prematurely withdraw funds from certain retirement accounts, there will be additional tax penalties and you will lose valuable interest. For those individuals who start employment at a new company, they can roll their retirement plan over to an IRA if they do not want to leave the funds in the previous account.
6. Think Outside the Box
If your employer does not offer a retirement plan, you can speak to the management and ask for one to be implemented for the employees. If such an idea does not take root for your employer, then open an Individual Retirement Account (IRA). Contributors receive tax advantages for maintaining an IRA. Current IRS regulations permit contributions of up to $5,500 per year and individuals older than 50 are permitted to contribute up to $6,500. A specific amount can be automatically transferred from your checking or savings accounts to the IRA. You can learn more about the differences between a traditional IRA and a Roth IRA from RothIRA.com.
7. Research Social Security Benefits
The last step is to research social security benefits. You can utilize the benefits calculator from the Social Security Administration to ascertain the amount of benefits you will be eligible to receive. The average benefits paid out are 40% of what an individual has earned in the working years previous to starting retirement. The SSA phone number is 1-800-772-1213.
Saving for retirement is one of the most important processes you will pursue in your life in order to provide for your future during retirement. Make the most of the information provided in this article and ascertain which of the seven steps discussed that you can start right away.