Establish savings benchmarks to reach at different ages—how much you should have saved by when. Plan for when to increase your contributions and when to begin shifting from aggressive to more moderate investments. The earlier you start to save, the less you will need to put aside each month to reach your retirement savings goals. Make your goals achievable so that you can stick with them.
Sign up and invest in your company’s 401(k).Open a Roth IRA if your income qualifies you, and your company doesn’t offer a retirement plan.Open an IRA if you are not covered by a company policy.Set up automatic payments to stay on track.
If 15% is too much for you to handle, make a plan to get there. Start by saving what you can afford without putting yourself in debt. Try for 5%, then add 1% or more each year to make your way up to 15%. Sock away any extra money you get for gifts and bonuses. When your pay increases, put all of the increase toward your retirement goal. How much you need to save will depend on the type of lifestyle you want in retirement and the age at which you want to retire. One investment firm recommends having one year of salary saved by age 30, three years by 40, six years by 50, eight years by 60, and 10 times your annual salary by 67. Circumstances such as how much income you can expect post-retirement will factor into the amount you should save. The Center for Retirement Research at Boston College calculates that to replace 70% of pre-retirement income, a medium-earning worker must start saving 10% of their income at age 25 to retire at age 65. Delaying the start of savings to age 45 would require a 27% annual saving to achieve the same target. As with any type of retirement account, you often have the option to determine how much risk you are willing to take. Younger investors with a longer time horizon can afford to invest more aggressively, while those closer to retirement age might examine how much of their portfolio sits in stocks. Fees can add up over the years and take a bite out of your proceeds. A 1% difference in fees can reduce performance by 28%. As you get closer to retirement and to needing the money invested, it can make sense to switch to some different tools that perform better than a straight savings account but without risk. These include certificates of deposit (CDs). As life expectancy increases, and retirees begin to live into their 90s, it still makes sense to keep some percentage of investment in the market to outpace inflation. For those with insufficient savings, working longer—even if in a part-time capacity—may be the best long-term solution. If you are self-employed, you need to begin planning for retirement right away, because you won’t be able to take advantage of employer matching programs or purchase company stock options. Still, self-employment introduces more opportunities for business tax deductions, and the money saved can be used for investment in an account designed specifically for the self-employed, such as a SEP-IRA. The SEP-IRA in tax year 2020 allowed up to 25% of income or $57,000, whichever is less, to be invested for long-term tax-deferred rates. In 2021, the limit is 25% of income or $58,000. This is nearly 10 times the amount an individual can invest in a standard IRA. Note that SEP-IRA contributions for 2020 can be made up to the date you file your 2020 taxes, including any extensions. A SEP-IRA is also suitable for a full-time employee who earns money with a side hustle, as is a self-employed 401(k).
