1. Introduction – savings for retirement
When it comes to you, don’t be foolish. One day you will be old and you won’t be able to work anymore. Then, your savings comes into play.
And when we can are talking about retirement, nothing is safe nor controllable anymore. Since we can’t control the future of Social Security, tax rates and inflation, the one thing we can control is the amount of money we saved during our life.
If Social Security is your only source of income when it comes to the retirement, then you might ask yourself what are you doing wrong.
In fact, a 30-year-old making $50,000 per year today—and who might realistically expect to make substantially more by the time he or she retires—can expect less than $22,000 per year from Social Security at age 67 (in today’s dollars). (Source: vanguard.com)
In today’s world pension plans are becoming quite rare and it’s more important than ever to take advantage and save some money on the side.
2. When should I start saving for retirement?
In the ideal world, you should start putting away your money into savings in your 20s (as early as possible).
For example if you start later, you will need to put away a lot more each month to reach the same amount of money if you started out young.
Here is an example: a male who starts saving at age 30 can get a pension of $10,000 a year at age 68 by saving $149 a month, according to figures from Standard Life. But if he waits until age 40 he would have to put by $290 a month to receive the same retirement income.
3. How to save money for retirement?
There are different ways for everything, including saving money!
- Pension funds – pension funds are tax-effective instruments with which a person can only access the money at the age of 55 or above and they are the most popular way to save money for retirement.
- ISAs – or Individual Savings Account. They are a bit more flexible way of saving you hard earned money. Also, it is important to note that they are tax-efficient.
Also, read our article on saving and investing here.
4. Balancing retirement savings and other goals
Most of us have different goals when it comes to the money. Some of asking ourselves if we should build up our savings, or should we pay off our debt.
4. 1. Save for retirement
If you haven’t started already, get started on this goal first. Just remember one thing, you can’t take out a loan to fund your retirement.
4. 2. Pay off debt
Most of us have some debts, college debts, bank loans, consumer debt, etc. After you are done planning with your retirement, you should try and pay off debt. Some debts are short term and non-tax-deductible. Also, don’t forget that they carry a high-interest rate as well.
4. 3. Emergency fund
Once you are planning with your retirement and you paid off your debts, you should always put some money aside and build up your emergency fund to cover at least 3 to 6 months of living expenses.
4. 4. Saving for college
If you’ve got kids or if you are planning to support them throughout their education, saving money for college should be on your list.
5. How much money will I need?
If you are just getting started, you should save as much as you can.
Is your retirement decades away? If so, you should focus on two things:
- Immediately saving at least enough to get the full match offered by your employer plan, if you have one.
- Work your way up to 12% or 15% of your pay.
6. Savings for Retirement Calculator
As you can see, saving for your retirement is super important. You’ll spend around 25-30 years in retirement – according to some researchers. That is if you retire at around 60 years of age.
Even if you don’t plan to retire early, illness or some other unavoidable responsibilities could prevent you from working as long as expected.
Figuring out how much money will you need and how exactly to save money is tricky, so the best thing is to start as early as possible.