Are you getting older and starting to look towards retirement? Are you wondering “am I saving enough for retirement?” You aren’t alone, nearly 64% of Americans aren’t ready for retirement. Now is the time to stop wondering and start planning.
Keep reading to learn more about if you are saving enough or if you need to take steps to start saving more.
Many companies offer their employees the opportunity to invest in a 401(k) plan. A 401(k) is a retirement savings account where you can have a portion of your salary diverted into a long-term investment opportunity.
If you invest a certain percentage of your salary you employer may offer to match that portion as an incentive to you to invest. A 401(k) is a recognized retirement plan by the IRS, so it is eligible for tax benefits when you are filing your yearly taxes.
When trying to determine how much you should contribute to your 401(k) each paycheck, there are a few things to keep in mind.
Take Advantage of an Employer Match
Many employers will match the amount of your retirement contribution at a certain percentage. Most employers match your salary contributions between the 3% to 5% range. This could mean a 50% match at your 3% contribution and 100% at your 5% contribution. It would be beneficial for you to take advantage of the full 100% by investing 5% of your salary.
Basically at 3% for every $1.00 you are contributing they are giving you 50 cents, equaling $1.50. Whereas if you were to invest 5%, for every $1.00 they give you $1.00, which equals $2.00.
This difference when applied to larger amounts of money will become a significant amount and should be taking advantage of as much as possible.
If you are concerned about investing too much in your 401(k) because you have high-interest debt, you need to focus on the bigger picture. Your retirement is a long-term investment and you have to take advantage of your employers’ contributions while you have the chance.
Saving for retirement is easier to do when you start when you are young. Since you have more time to work towards your goals, you don’t have to be as aggressive with your savings. If you’re 20 years old and start saving into a retirement account at least $5,000 a year, then by the time you reach retirement age you will have more than met your goal.
If you are older and haven’t had the opportunity to start saving yet, then you will have no choice but to be aggressive with your savings. If you are 50 years old and plan on retiring when you are around 65, then you will have to start saving at least $2,000 a month.
Delay Your Retirement
If you had a late start saving or weren’t able to be as aggressive as you needed to be then your best bet is to delay when you retire. Most people are eligible for Social Security benefits at the age of 67, which should be your target year.
This means that you will not have to fully rely on your retirement investments because you will be able to supplement your income with your Social Security payments.
During this delay, you should begin aggressively saving as much as you can while you are still employed. If you plan on working longer than 67, then you can adjust your yearly savings percentage rate. However, a good rule of thumb is to save at least 15% so you can be prepared for anything.
Mix It Up
Besides the traditional 401(k) retirement account you should also consider whether or not a Roth 401(k) or Roth IRA would be right for you. A traditional retirement account allows you to invest your money with pre-tax dollars, meaning that you don’t have to pay taxes on it now but you will have to pay taxes when you withdraw for retirement.
A Roth 401(k) and a Roth IRA allow you to invest after-tax money, which means that you will have to pay the taxes now but avoid the fee when you are ready to retire.
Depending on how old you are, how much your income is, and what you are expecting to pay in taxes when you retire should help you decide on what type of Retirement Assets are right for you.
Choose an Investing Style
If you have started to save for your retirement early then you should consider increasing your saving percentage over time. If you start increasing your investment by 1% each year you will barely notice the difference to your paycheck. This strategy allows you to adjust slowly to the difference. Not only that but in 20 to 30 years you will have reached a significant difference in your savings portfolio.
You should also keep an eye on your portfolio. Changes in the market can mean changes to your investment mix, which means you should maintain a decent diversity in how your funds are allocated. Make a plan to look at your investments at least once a year and make sure you have a decent amount in cash, stocks, and bonds.
If you are younger, you can make riskier decisions with stocks because if something fails you have plenty of time to bounce back, unlike when you are older.
If you aren’t sure about how to manage your investments, or maybe you simply don’t have the time, you can have a professional manage your account for you. These managers will consider all of your particular situations and help make the best decisions for you.
Am I Saving Enough for Retirement?
Are you still wondering “am I saving enough for retirement?” If so, now is the time to take a look at your current situation and start making the adjustments you need.
If you are still young, try and save at least 10% to 15% per year, and steadily increase that amount over time. If you are older, now is the time to aggressively make investments and adjust things as needed.
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