Saving for Retirement Starts Your First Day on the JobOctober 09, 2014
Ensure that your retirement is as enjoyable as possible through early planning and analysis of your current financial situation.
With the stress of everyday life and heavy expenses, it can be hard to think of your financial status in retirement. If you are able to comfortably do so, however, it is beneficial to start planning as early as possible for your “golden years”.
Once you are living on your own, it might seem crazy to think about the end of your career when yours is probably just beginning. However, starting retirement planning early is not only normal, but encouraged! The more time you have to save, the more time your money has to grow.
6 money saving tips for young professionals:
- Start saving now. Though you may have crippling student loan expenses, don’t let them become an excuse not to save. Find a manageable balance between saving and spending. Set up an automatic monthly withdrawal from your checking account that will be put directly into retirement and help you resist spending. If you never see the money it’s like you never had it to spend in the first place. Keep your propensity to save in mind when negotiating your first job offer.
- 401(k) - A good first step in any retirement plan is to contribute to a traditional employer-sponsored defined contribution plan. Contribute the maximum amount allowed as soon as you enter the workforce. Many employers even offer a match up to a certain percentage. Find out what that amount is and how you can start contributing to your savings, and who doesn’t love free money?
- Individual Retirement Account (IRA) - If your employer doesn’t offer a retirement plan, consider an IRA instead. You can put up to $5,500 per year into an IRA. This option is attractive to teens mostly because your contributions are limited once your income exceeds $6,200. Your distributions to a Roth IRA account will grow tax-deferred. Contributions can be made through stocks, bonds, or simply cash!
- Live with parents- Though it may be time for you to leave your home after graduating college, consider living with parents to save on rent. By losing independence now, you will gain more later by concentrating on saving rather than trying to stretch your paycheck to cover rent.
- Rent instead of buy- If living with your parents doesn’t seem feasible or at all desirable for you, sharing rent with friends or relatives could be a good option as well. Though you are still sacrificing some independence, by agreeing to share living quarters with others, you will ultimately save. More often than not, water, power, and other utilities are included in the price of rent too, things that would be additional expenses in a purchased home.
- Invest- Put your savings towards different investments. Invest in different stocks to reduce risk and improve your overall return on investment (ROI).
**If you were too ambitious with your retirement planning and are short on cash, think twice before withdrawing money early from your account. Distributions before age 59½ are subject to a 10% penalty on top of any income tax that normally would be due on a withdrawal. In addition, you will lose the potential tax-deferred future growth on the amount withdrawn.
As soon as you can start saving, you should. Studies have shown that those who begin saving at an early age, say 25, and put aside $3000 per year in a tax-deferred retirement account for ten years will have made more than the person who put it off ten years and put $3,000 per year for 30 years. For the early saver, $472,000 will be saved by the time he/she reaches age 65. For the person who waited ten years to start saving, only about $367,000 will be in his/her retirement savings by age 65.
It is undoubtedly not easy to set aside money for the future when current expenses are weighing you down, but any amount is better than nothing. To ensure the most financially secure future, keep excess entertainment and spending in moderation, you will thank yourself later!
For more information on retirement planning, contact us.