It is important to save for retirement at every
stage of your life. As lifestyle and financial commitments change, saving for
retirement should too. On NBC’s Today Show, correspondents Ramit Sethi and
Victoria Woods broke down retirement planning into three stages: your 20s and
30s, 30s and 40s, and finally, 50s and 60s.
To younger people, 65 seems a lifetime away.
Regardless, you need to start planning and saving for retirement now. People in
their 20s and 30s have the power of compounding on their side and need to take
advantage of it! Pay off your car and start saving the payments you would have
made. For example, the average monthly car payment is $378. If 25 year-old took
that money every month and invested it, by the age of 65 they would have
$1,500,000. You do not have to be rich to start saving. Even putting aside as
little as $200 a month through an automated retirement account is a great way
to start. Writing a monthly check can seem daunting but automating the process
ensures that the money is taken from your paycheck and put into your
savings. At this stage in life,
people have the freedom to be more aggressive with their investment strategy; they
have many years ahead of them before they have to retire and relatively few
financial obligations. This makes
it an ideal time to start lifecycle funds.
People in their 30s and 40s should shift their
saving practices slightly as their financial responsibilities have
changed. Having a family and kids
who are about to go off to college is a big expense and priorities need to be
set. People in their 30s and 40s should be saving 15% of their income. This
money should go to a 401(k) up until the employer matches it. Another great
place to save is a Roth IRA, which allow for more flexibility than a 401(k).
The best thing you can do for yourself headed
into your retirement is to be debt free.
You simply cannot afford to be trying to pay off debt in retirement.
People in their 50s and 60s should also have an emergency fund set aside which
should be the approximate cash amount of 2 years of fixed expenses. This seems
like a lot but imagine the peace of mind this provides. While a working
individual should have about 7 months of expenses put aside, it is a smart idea
for people about to enter retirement to give themselves more of a cushion.
Saving
for retirement can seem like an insurmountable task, but it doesn’t have to be.
By being proactive and staying well informed of your options, you can make your
life a lot easier.
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