As a millennial with a growing career and maybe even a partner and family to care for, the conversation around your financial future is beginning to evolve. A recent Goldman Sachs Retirement Survey & Insights Report stated that 34% of Millennials are behind on saving for retirement. With the cost of living and healthcare rising, it’s important to plan ahead and start saving for retirement as early as possible.
It may be hard to imagine now, but there will actually come a day when you’re not punching the clock at your 9-5. The small steps you take now will help lay the foundation for your financial future. In this article, we’ll discuss some practical tips for retirement planning to ensure your financial security in the years to come.
What is retirement planning?
So, what exactly is retirement planning? It’s the process of financially preparing for life after you stop working. According to NerdWallet, saving around 80% of your pre-retirement income is best. Retirement doesn’t just happen overnight. It takes careful planning and preparation over the course of several years, and it includes doing things like creating a budget, assessing your financial resources, setting financial goals, and investing to ensure you can retire comfortably when the time is right.
Types of retirement savings accounts
There are several types of retirement savings accounts, but some of the most common include 401(K), IRA, and Roth IRA. Below is a brief overview of what each of those accounts includes.
401(K): A 401(k) is a retirement savings plan sponsored by an employer. It allows you to save and invest a portion of your paycheck before taxes are taken out, making it an easy way to save for retirement without making the extra effort. Many employers offer an employer match, and they’ll match a percentage of what you contribute to your retirement account. The amount and length of time will vary depending on your employer.
IRA: An IRA (Individual Retirement Account) is a type of retirement plan that allows you to make tax-deductible contributions to your own retirement savings. These contributions can be invested in stocks, bonds, mutual funds, and other investments.
Roth IRA: A Roth IRA is a type of retirement savings plan that allows you to make post-tax contributions to your retirement savings. Unlike a traditional IRA, the money that is contributed to a Roth IRA is not taxed when it is withdrawn during retirement. The money is taxed upfront when it is deposited.
Tips for successful retirement planning
Now that you’re familiar with what retirement planning is and the different types of retirement accounts, let’s look at some helpful tips to get you started.
Create a budget and stick to it
Establishing a budget is the most critical part of planning for retirement. You can’t expect to save money you don’t know you have. Calculate your monthly income and expenses like housing, healthcare, utilities, and groceries to figure out how much you have left to put aside. Once you know how much money you have to work with, you can allocate it to save for retirement while still taking care of your other expenses.
Determine your retirement goals
Having a goal in mind will help keep you focused on what you want to save. Think about the kind of lifestyle you want to live when you retire and what your financial needs will be during that time. Do you plan on traveling frequently? Will your monthly bills change due to your mortgage or car being paid off? Will you still have some debt to pay off? These are just a few of the questions you’ll want to ask yourself when creating realistic retirement goals.
Pay off your debt
It’s almost impossible to save money when you owe a significant amount of debt, whether to a friend or family member or a loan or credit card balance. Pay off your outstanding debt completely so you have more money available to put toward your retirement.
If you put off paying the debts you owe, they’ll only grow larger with the addition of late fees and high-interest rates. You definitely don’t want to take your debt with you into your retirement years, so it’s best to start now so you can enjoy the fruits of your labor without having to avoid those pesky debt collection calls.
Increase your contributions over time
As your salary increases via promotion at work, an increase in business sales, or a new side gig, it’s important to keep increasing the amount you contribute to your retirement plan.
As you increase your retirement contributions over time, the amount you contribute grows with each raise or bonus you receive. This allows you to take advantage of compounding, which is when the interest you earn on your investments generates its own returns, leading to a more significant nest egg over time.
As the cost of living increases, the value of your retirement savings decreases. So, increasing your contributions will help you ensure that the amount you’re contributing is keeping up with inflation and provide you with enough money in retirement to maintain your current lifestyle.
Overall, successful retirement planning at any age is possible with the right preparation and dedication. Creating a budget, establishing your retirement goals, paying off outstanding debt, and increasing your contributions over time are all important steps to ensure a secure and comfortable retirement.
