Recent studies show that 56% of Americans lose sleep when they think about retirement.1
I don't know about you, but that doesn't sound particularly fun to me. But, when you consider the fact that 1 in 3 Americans have nothing saved for retirement, and more than half of Americans have less than $10,000 saved2, all those sleepless nights start to make sense.
Here’s the real fact of the matter: You can retire, but to do so effectively is going to require a little time and planning.
Here are 5 tips you can use today to start saving for retirement without losing sleep.
1. Start early and be consistent!
Time is your friend. Most people have three-plus decades of working before retirement. Use that time to make a plan and stick to it. Remember, compounding interest does its best work when able to accrue over a long period of time. Start making contributions to retirement savings account as soon as you start to have a consistent income, and continue those contributions on a regular basis until you reach retirement.
2. Pay yourself first
We've all heard the old adage, ‘pay yourself first,’ but are you following that advice? Paying yourself first means that before your paycheck makes its way into your bank account and can be used to pay other people and businesses, pay yourself. Set up automatic deductions from each paycheck to go into a savings account to build an emergency fund, and schedule automatic payments or deductions for any retirement savings accounts.
3. The Employer-sponsored plan
For most people, a 401k or a 403b offered through an employer is the most convenient way to start saving for retirement. You don’t need to feel pressured to contribute a ton to your 401k or 403b when you are just starting out, but if your employer offers matching contributions, you should make it a goal to at least contribute enough to maximize that employer-match. Most employers who match contributions will do so up to 3-5% of an employee’s annual salary. So for example, if you make $50k a year, and your employer offers a 5% match, make your 401k goal for the year to contribute AT LEAST $2,500. If not, you’re practically throwing away free money.
4. The IRA
An IRA, or Individual Retirement Account, may be a great option for someone who does not have access to a retirement savings plan at work. For the 2019 tax year, you can contribute up to $6,000 to an IRA. Plus, if you are over age 50, you can make an additional $1,000 catch-up contribution. Contributions can be made tax free to a traditional IRA, or if you would prefer to make after-tax contributions, you can do so by contributing to a Roth IRA. IRA contributions can also be set up as automatic from your checking account so you are still making sure to pay yourself first.
5. Contributing a little is better than not at all.
For those of you who are just starting out in your careers, not making a massive salary, or are still paying student loans, know that you don't need to maximize your 401k contribution to be on track for retirement. It’s okay if at first, you can only contribute $25 to your retirement savings each week. A small and consistent contribution that starts at the beginning of your career and grows over time is far better than saving nothing at all. Just be sure that as your income increases so do your contributions to your 401k and IRA. There may also be times of the year when you find yourself with a higher than normal cash flow as a result of say, a bonus or gift - consider using that money to add some extra cushion to that retirement account you have been making small and consistent contributions to all year.
The most important thing is that you have a plan for retirement that you feel confident in and will be able to stick to. Working with a financial advisor can be a great way to help keep you on track. In doing so you will have someone to hold you accountable, who speaks the language of finance, can crunch some of the numbers, and just generally offer advice and guidance on all things personal finance related.
Have questions? Let's Talk.
1 "2016 Retirement in America Survey," Ramsey Solutions, August 2016
2 GOBankingRates, March 2016
This information is not intended to be a substitute for specific individualized tax advice. Tax services are not offered by Personal Financial Strategies, LPL Financial or affiliated advisors. We suggest that you discuss your specific tax issues with a qualified advisor.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
Securities offered through LPL Financial, member FINRA/SIPC.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax-free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.