Planning for retirement is something that far too many people delay until they are nearing retirement age. According to the Economic Policy Institute, only about half of Americans ages 32 to 37 have started saving for retirement. If you start early, you can choose when you want to stop working rather than stay at your job until you are no longer able to work.
The benefits of saving money for retirement include confidence in your financial future for yourself and those who care about you, the ability to maintain your current standard of living once you stop working, and the freedom to spend time with children and grandchildren and do other things you love.
Simply put, saving enough for retirement and making sure you have investment assets on the side to generate income are critical because Social Security itself is not sufficient.
You probably know that the best time to start planning for retirement was years ago. The second-best time, however, is now. Regardless of how old you are or how much you have saved, you can put money away for the future. The most important reason to start saving is to make money using time, so get your money working for you as soon as possible. Here are some tips that will help:
What is a retirement savings plan? In essence, it is a road map for your money’s destination. Map out your future expenses by establishing savings timelines for each need. Goals such as purchasing a car or saving for your child’s college will have different timelines. The Consumer Price Index, which tracks the prices of goods and services, indicates that inflation is driving prices up by 2.5% to 3% each year. If your money is not growing at the same rate, it is losing value. Planning will help you at least keep up with inflation, whether via a mutual fund, an investment account, or real estate. Likewise, programs such as individual IRAs or 401(k)s, which could be offered by your employer, allow you to defer paying taxes on money that you put away for retirement.
It is not how much you make but how much you keep that really matters. Once you establish a habit of putting money away, the better positioned you are to create a nest egg for the future. Remember to always pay yourself first. You should have a set amount to put into savings every month, even before you pay your first bill. Look at your spending over a three-month period and divide it into two categories: necessities and luxuries. If you are asking yourself how to increase your savings, the answer is to cut spending on items that you want but do not really need.
What is a retirement savings plan good for if you are not going to stick to it? If you are saving with your spouse, keep each other motivated to stay on track. If you are saving independently, find a tool you can use to measure your progress each month. It could be a simple profit-and-loss statement, similar to what businesses use, or an app like Mint or EveryDollar that allows you to track your savings and spending habits. Most banks also have tools within their own online banking system that allow you to monitor your spending habits and budget accordingly.
Some final reminders:
The benefits of saving money for retirement outweigh the smaller sacrifices you might have to make each month to build your nest egg. The earlier you start, the more time you have for your money to grow. The longer it is in a retirement account or an investment vehicle, the better. That is how to maximize savings. Moreover, if you get into the habit of saving while you are young, you will be in a better position to accomplish your goals in the future.
If you need help with financial planning, call Cathay Wealth Management today for a complimentary financial plan review, or visit the Cathay Wealth Management site for a full list of services.
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