George Bernard Shaw probably said it best: “Youth is wasted on the young.” When you’re fresh out of college and starting your first job, setting aside money for your golden years is the farthest thing from your mind. That lack of interest in planning for your future doesn’t negate the proven fact that now is the time to start your retirement savings.
If you do a bit of research on ways to plan for your future retirement, one strategy stands out. It is included in just about every strategic plan that the experts advise: start saving now, keep saving throughout your working years, and stick to whatever goals you set. Invest your savings to see it grow into that next egg you want for your later years.
What’s the plan?
You must have a plan; there’s no getting around that. When you’re working on your investment planning for retirement, the first thing you need to nail down is how much savings you’ll need to fulfill your retirement dreams. Envision what your retirement will look like, then ask yourself – and your financial adviser – how much that dream is going to cost. Take a look at all the different options open to you, then decide which investments will fit best in your individual retirement plan.
Social Security, et al
If your retirement plan has Social Security as its cornerstone, you may want to rethink your retirement planning strategy. The future of Social Security is heavily tied on the political climate of the country, so depending solely or mostly on it could prove risky. Getting an estimate of the amount of funds you may receive from this source can give you a starting point in your retirement plan, however. Also take into account any defined benefit pension benefits to which you may be entitled upon retirement. This can also impact the total amount that you need to be saving now.
Of course, the earlier you retire, the larger a retirement nest egg you’ll need. If you retire later in life, you’ll likely be retired for a shorter time and can get by with a bit less.
The bottom line: how much?
The burning question is, “how much is enough?” The simple answer to that would be, “as much as possible.” A general rule of thumb is to strive for savings of between 10% to 20% of your annual income throughout your working years. That’s every year, not just a few here and there.
In the early days of your career, this may seem like a big chunk of your paycheck. If you can’t muster the full percentage amount recommended, try to at least contribute an amount equal to your employer’s matching contribution.
Check on your nest egg from time to time to see how you’re doing. Most financial planners consider a withdrawal rate of four percent per year to be an acceptable rate of yearly expenditure from your retirement fund.
Do the math, tighten up the belt, and get your retirement savings on the right track. Start saving for retirement while you’re wasting your youth on being young.