All About Retirement Planning
The old adage insists that “a penny saved is a penny earned.” Unfortunately, this can be easier said than done — particularly for students and entry-level employees who may not yet be raking in the big bucks. But there’s also a saying that goes, “Why put off for tomorrow what you can do today?” And the truth is that regardless of the amount you earn, you can and should be thinking about retirement. Let’s count down four strategies aimed at turning today’s pennies into tomorrow’s savings.
1. Have a Financial Plan
Just because retirement is still 20,30 or even 40 years into the future doesn’t mean you can’t have a plan in place aimed at helping you reach your goals along the way. The first step in planning for the future is having a plan in the first place.
Begin by considering both your immediate and long-term financial goals. Be as thorough as possible, including everything from daily needs like groceries and commuting costs to more significant objectives, such as home ownership. Write these things down. Not only does research indicate that writing down your goals can help you reach them, but this list will become a touchpoint over the years.
After you’ve prepared your financial goals, your next step is to determine a “big picture” comprehensive budget to determine what it will take to get you there. Luckily, a number of free online resources exist to help you with this part of the process. Sites like Voya Financial’s Home Budget & Savings Calculator are a great way to see where your money is going and how to start saving.
2. Start Saving
Saving money is a habit. The sooner your start, the sooner it will become something you don’t even have to think about. Not to mention that you can’t miss what you never had to begin with, which is why workplace retirement savings plans — such as 401(k)s and Roth IRAs — which be set up to auto-deduct a preset amount from your paycheck, can be an invaluable financial jumpstart. Not only are these funds tax-deferrable, but many employers will also match your contribution.
By saving early, you can maximize what you’ll have in the long run. Consider a scenario shared by Bankrate revealing the difference between saving $2,000 a year beginning at age 35 and the same amount beginning 10 years earlier at age 25. With the former setup (assuming 8 percent earnings), you’ll reach the age of retirement with approximately $245,000. This may sound okay…until you consider that the 25-year-old saver would have racked up $560,000 — more than twice that of the 35-year-old saver.
The best part of starting to save now? Once you’ve got everything set up, all you have to do is kick back and watch your nest egg grow. And even if you can only spare a small amount now, you can adjust how much is being deducted as your financial situation improves.
3. Manage Your Debt
When it comes to four-letter words, this one is enough to strike fear in the heart of any financial planner: debt. Unfortunately, failure to understand the impact of debt — from student loans to credit card debt — from the onset can result in an unpleasant snowball effect. While completely avoiding debt may be an unrealistic expectation, having a plan to pay down your debt can prevent it from escalating. Experts suggest building paying off loans into your budget calculations, starting by tackling debt with the highest interest rates first.
One caveat? While your instinct may be to throw everything you’ve got at your debt toward a “clean slate,” delaying retirement contributions while failing to establishment a critical “rainy day” fund can be a slippery slope. Why? Because saving for retirement doesn’t necessarily get easier as you get older due to the accumulation of new financial responsibilities throughout life. In many cases, maxing our your retirement contributions while establishing a less aggressive loan repayment plan can lead to better financial outcomes.
4. Factor in Insurance
While you may automatically gain access to health insurance during your student days, it’s important to realize that your insurance needs won’t be static throughout your life. Depending on dynamic factors like debts and dependents, you may need varying health, life, and other forms of insurance. Reassessing your needs along the way can help ensure that you have enough coverage should a major life event or unexpected emergency arise.