Lesson Two – Saving for Retirement
How are you doing with your saving for retirement? How many more years do you have before you would like to retire? Not sure, well one fact for sure is you have one less year than you did last year.
A large percentage of the population does not save enough for retirement. Gone are the days when you have a pension and social security guaranteed to be waiting for you when you retire. You have to take control yourself.
But how? Even though your income may go up every year, you can’t seem to scrape enough “extra” to put aside for savings.
There is a way to do it though that is not as painful as you might guess.
Like a lot of difficult or challenging tasks if you break them down and start small you can manage it. Over time you can build up your efforts as you get better. This applies to anything, practice makes perfect.
In the last lesson LINK, you learned about developling the saving habit – doing something small regularly until it becomes a habit.
Saving for retirement is just another type of saving, so start small.
You could go two routes; participate in your company’s 401K plan, or if you are on your own than start an IRA.
Most companies have some sort of 401K benefit they offer their employees. This benefit can vary. Some employees can participate right away and some have a waiting period before they can enroll. Your company may offer a matching program, where they will match your contributions, either dollar for dollar or some percentage, say 50%, usually up to some maximum amount. These matches are like receiving free money and you should take advantage of them.
Check with your HR department and see if you are eligible and if you can enroll now or if you have to wait for an open enrollment period. Review the benefit offered and see if you can afford to save the maximum amount that will be matched by your company. Since this will come out of your paycheck “pretax” you should save some taxes and the amount that your paycheck decreases may not be as bad as you thought.
One Cool Way to Get Started Saving for Retirement
If you can’t save the maximum, look to start with a minimum of 1%. You won’t notice much of a difference in your paycheck, but it will get you started on your retirement savings. Every year increase this amount by at least 1%, so that in year two you have 2% taken out. Or better yet, increase it by 2% so that in year two you are up to 3%. Before you know it, you will be at the maximum amount allowed.
Use a similar approach if your company doesn’t offer a 401K or you are self-employed. Start an IRA or Roth IRA and have an amount automatically deposited to it each payroll (check with your HR department or accountant to set this up for you). Instead of 1% you could start with an amount as small as $25.
Forget worrying about the fact that you should have started earlier or that you can’t save more. Do the best you can right now. The important thing is to get started and to do it today and watch your efforts grow your savings over time. One day you will look back at this time as one of the keys to your financial success.
In our next lesson, we will talk about a subject that has caused so many devastating problems for people – debt and tips to limit it and get rid of it.