Dealing with retirement funds is a commonly discussed theme on financial platforms, but unfortunately, the average individual doesn’t usually spare much thought for it. Regardless of your age, whether you’re 21 or 61, it’s critical to map out your retirement savings plan. It’s easy to procrastinate, with excuses like, “I’m too young, there’s plenty of time left” or “I am too old to save anything substantial”. Both these perceptions are misguided, because the reality is that it’s never too late or too early to begin your retirement savings journey.
START EARLY
Needless to say, it is best to start saving for retirement at the earliest. Even if you are a recent graduate, make no mistake, this recommendation still holds for you. Maximizing your retirement savings involves capitalizing on the employer’s 401K matching scheme. Ensure you avail this fringe benefit upon joining a new organization. It’s practically free money, incentivizing you to contribute towards your 401K. It’s common for new, young employees to ignore this provision, as it appears to cut into their yearly spends. However, if these contributions are automated and taken from your salary before you even receive it, its absence will not be keenly felt. Yes, it may require adjustments in your lifestyle, but the trade-off will be absolutely worthwhile when retirement comes around. A modest start with 1% of your income, incrementally increased by 1% every year (if your financial situation permits,) can make a substantial difference.
THE GAME OF CATCH-UP PAST MIDDLE AGE
Venturing into planning your retirement when you’re older is not a singular case; many do so. Though you will need to devote more to your retirement fund than someone in their mid-20s, it’s most certainly not an insurmountable task. The primary step is ensuring you are maximizing your allowable contributions. Fortunately, those over 50 can contribute up to $23,000 to their 401K and $6,500 to their IRA annually. Exploit these limits and combine them with your employer’s matching funds. In order to meet these large annual deposits, you’ll have to curtail your living expenditures. Downsizing to a smaller dwelling or a lesser-priced car can contribute significantly towards accomplishing this. For the majority in the 40 to 55 age bracket, their children will typically be grown up and beginning to be self-dependent. It’s of paramount importance that your offspring understand you’re not an inexhaustible fund, emphasizing the need for you to rigorously save for retirement. Otherwise, when you’re no longer able to work, they might be burdened with the costs. Your children may be disappointed that you can’t financially assist them with their college expenses or buying their first homes. However, securing your retirement provides them an even greater gift – your self-reliance.
TIPS FOR EVERY AGE GROUP
Irrespective of the age you begin to save for retirement, it’s vital to estimate how much you’ll require in the future. Factor in the costs of living, emergencies, and insurance in this calculation to determine a target retirement savings goal.
Another practical suggestion is to contribute half of any raises or tax refunds to your 401K or IRA account, smoothing the path towards achieving maximum contributions.
