Saving for retirement is one of life’s most obvious “to do’s,” and, to some degree, one of life’s great mysteries. It seems so easy on the surface. But this isn’t always easy to do with the onslaught of financial responsibilities each one of us is uniquely (and similarly) on the hook for. When you start in on “real life” and enter the workforce, it’s not always immediately obvious how to start saving for retirement. Some employers have 401(k) plans that simplify the initial idea of saving. But not all companies do this, and further, not all people in their late teens and early twenties are of the mindset that saving for retirement is something they ought to be considering right out of the gate.
The simplest sentiment when it comes to answering the question of how to start saving for retirement is to start early, and contribute often. Which, again, isn’t always as easy as it sounds. In this blog, we’ll show you small habits you can develop that will make a huge difference when saving for retirement.
We know what you’re saying. “What should that goal be?” When you’re young, it can be tricky to formulate what your goals might be decades from now. We get it. How to start saving for retirement doesn’t necessarily mean you have to have a huge tried and true objective out of the gate. A quick and easy goal is to set aside some amount of money that will help kickstart your retirement savings. Start saving something, anything, and you’ll already be on your way to setting up a fiscally responsible foundation.
Something to consider that can help you wrap your head around saving for retirement is that, when you do stop working, it’s estimated that you’ll still need 70-90% of your current annual income to sustain you. Obviously, your salary will fluctuate as the years pass, so maybe set a realistic goal of saving 5-7% of your earnings now, and carry that through regardless of an increase in your ongoing income. Over time try to get that number up a bit. Some studies show that we should be saving 15% of our annual income at the age of 25. Obviously, this can be difficult with things like rent, student loans, and other applicable bills, but it’s a number to shoot for.
Getting started is half the battle. Not everyone begins right when they enter into their careers. That’s okay. What’s important is that you do begin, no matter when that happens to be. If you just turned 40 and think, “I haven’t started yet, so why should I start at all?” you need to realign your thinking. It’s not impossible to reach your retirement goals; it just becomes more challenging the longer you wait.
We’ll keep this as simple as possible. If you start saving $5,000 annually at age 32 vs. someone who starts saving the same amount at age 22, guess who saves more on principal alone? The 22-year-old (to the tune of $50,000). Further, if you apply the standard 6% annual return on investment to the equation, once you both reach retirement at, say, age 67, the 22-year-old will have an additional $500,000 to their credit. That’s substantial.
And, as you get rewarded with raises and periodic bonuses, don’t approach this additional money as “fun money.” Instead, take the bulk of it, and work it into your savings. The more you can do to sock away funds sets you up for a more successful (and comfortable) retirement. A new bag or a new lot of vinyl records may not be the timeless investments you’re hoping they’ll be. So curb that enthusiasm (while still rewarding yourself every now and then), as hard as it may be.
Some of this will be repetitive, but we wanted to leave you with six quick wins when it comes to saving for retirement:
At the end of the day, if you have any questions or are interested in starting your retirement savings journey, feel free to reach out to our in-house team of financial advisors. They’d be happy to help you find your way and establish more fiscally sound footing!