Last Updated on January 23, 2020
Creating a plan when saving for retirement is easy, particularly when you’re young. Below are a few basic tips that you can apply, and a few considerations to make during your retirement saving journey.
Saving for Retirement
When you start saving for retirement, you’re likely early in your career, and early in your financial knowledge. How much should I save? You ask your banker, your coworkers, your sister who was a finance major in college, you may even ask your parents. And the response from them all is basically the same: “As much as possible.”
But this doesn’t really help. Common sense says if you can live on $35,000 now you should be able to live on that later in life, but that’s not really the case. You’re getting by now, but you have two roommates, a car that’s sort of beat up, and minimal expenses. A spouse, kids, a house, more cars… all of that can really add up.
You can find an online calculator to indicate how much investment firms think you should save. These are helpful but want to know the rate of interest you’ll be receiving. Do you know it? Probably not. You’re brand-spanking-new at this and don’t have a lot of knowledge in the area.
Contribute What Your Company Will Match
So where do you start? If you work for someone else, and the company has a 401k matching plan, the best way to start is by contributing – at a minimum – the percentage your company will match. If, for example, your company will match 2%, make sure your contribution amount matches that and then you’re getting twice the contribution for half the effort.
Get to Know the Industry
What else can you do? Start learning about finances. Find a financial advisor who knows what they’re talking about, and not just your cousin Larry whom you see twice a year at holiday parties and is always pushing stocks his company is paying him to push. Talk to your plan administrator where you work, and get a contact at the investment company. Ask your questions to them. And have them explain it you so you understand. Where is your money invested? Do you have different plan options? Are you getting the most from your money? Is your money being invested where it can do the most good?
It’s also important to know that traditional accounts, such as a 401k and IRA are not your only options. There are self-directed retirement plans with passive custodians, like the Self-Directed IRA, which has the same contributions as a traditional IRA, but gives you more control. If you are eligible for the Solo 401(k), you can make higher contributions than with a work-sponsored 401k plan. Furthermore, traditional investments, like stocks, are not the only investments you have to make. With a self-directed retirement plan, you can also invest in real estate, cryptocurrency, tax liens, precious metals and much more. These are known as alternative investments.
Create a Game Plan When Saving for Retirement
As for how much you need, and how much you should save, “as much as possible,” is a valid answer, if a bit unhelpful. Instead, try and visualize what your minimum annual income need is, and plan to make more than that, save the rest, and contribute regularly. Not a very satisfactory answer either, but also something that can point you in the right direction. Some financial institutions often say ten times your final salary should be what you have banked by the time you retire but this can be hard to know since you’re starting out and don’t know where you’ll end up.
Visualize Your Goals
But as for saving for anything at all, the most important thing you can do is visualize your goal and contribute regularly. It may make sense in your particular set of circumstance to pay down your debt rather than contribute more than a matching amount to your corporate 401k. If you are self-employed, you’ll want to make sure you have enough money in the bank to act as a cushion in addition to your savings goals. Don’t be afraid to learn about money and investing so you can best serve yourself!
As you can see, creating a plan when saving for retirement isn’t hard. It just takes some discipline and time. But if you’re consistent, you will be able to cherish your Golden Years – not work through them.