A lot of people are considering how to start saving for retirement, but some more seriously than others. Let’s be clear: it is never too early to start saving for retirement, and there are lots of really great retirement options.
When answering the question “how much money do I need to retire?”…the general estimate is that you will need 70-90% of what you made before retirement, and on average people spend 20 years retired. If you take inflation into account, that adds up to a pretty tidy sum.
Like the comedian Gene Perret said, “Retirement: It’s nice to get out of the rat race, but you have to learn to get along with less cheese.”
There is some good news, though. There is one easy trick for retirement savings: START SAVING! Shocking, right?
Well, it turns out that people are pretty good at maintaining the status quo. If you’re not saving for retirement, then you keep on spending.
A retirement calculator can give you a ball park figure of what you’ll need in retirement and while it’s not 100% accurate, what it does do is get you thinking about the reality of your situation and moving you in the direction of getting something going.
Once you start saving, though, it’s remarkably easy to keep cash flowing to your retirement fund because you’re just operating under the status quo. If you’re wondering where to put your money, here are the top 5 retirement options (in no particular order).
Your Employer’s Retirement Plan
If the company you work for has a retirement plan (like a 401(k) plan), take advantage of it. The more you put into it, the lower your taxes will be, and the more your employer will contribute.
Make sure to find out how much you need to put in to have the maximum contribution from your employer and how long you need to stay in the plan. And if they don’t have a retirement plan, you can always ask that they start one.
Pensions
Find out if your company has a pension plan and what you would need to do to be a part of it. If you switch jobs, be sure to know what will happen to your pension benefits. While you’re at it, make sure that you don’t have any retirement savings left with a previous employer.
Individual Retirement Accounts
Every year you can deposit $5,000 into your Individual Retirement Account (IRA) up to age 50. You can put in more after that.
The tax benefits depend on which kind of IRA you have – a traditional IRA or a Roth IRA. For a traditional IRA, you pay taxes when you withdraw the money but not when you deposit, and a Roth IRA you pay when you deposit but not withdraw (there are other differences, too: Roth IRAs have income limits and are easier to withdraw from, for example).
Social Security
When claiming Social Security, expect to get about 40% of your pre-retirement salary. You should be getting a statement every year that gives you an idea of what to expect.
Other Investments
Everything up until now has been pretty low risk, but when you consider standard forms of investment (stocks, options, etc.) you’re entering an unstable and unpredictable field.
Because the money you’re investing is something that you will need to live, it’s best to make sure that you’re sufficiently covered with safer retirement options before chancing your money with other investments. That being said, there is a lot more room here for your money to grow.
All in all, the best option is to cover your bases and diversify. The more ways that you invest, the more stable your retirement savings are. Just keep in mind- it’s never too early to start!