For many people, retirement can feel a lifetime away. It’s hard to imagine your life that far in the future, especially if you’re a young person just entering the workforce. However, it’s never too early to start planning for retirement—nor does it have to feel like planning.
Here are our top five ways to start preparing for your dream retirement, stress-free.
#1 Do Research and Set Goals
Doing the requisite research for your individual financial situation is the most important element to a successful retirement. Spending time researching your retirement options and consulting wealth management professionals is a great way to get started.
Here are some basic retirement goals you may want to consider:
- By the age of thirty, you’ll want to have about the equivalent of your yearly salary saved in a retirement fund, basic savings account, or high-yield savings account.
- Aim to have three times your annual salary saved by the time you are forty.
- Have about six times your salary saved by the age of fifty.
- Upon retirement (around age 67), having ten times your salary saved is a great goal, and surprisingly feasible if you plan well. Luckily for you, you’re on the perfect article to teach you how to achieve that goal!
Saving for your retirement is just as crucial as the work you do in the years prior to those whimsical days of sipping an oaky red on the beach. But if you want to bury your toes in the sand and watch the waves crash on the shore, you’ll want to make sure your retirement strategy is absolutely waterproof.
#2 Enroll in a 401k
401ks sound confusing, but they’re actually pretty simple. Setting up your 401k (or employer-sponsored retirement plan) is a crucial first step to planning for retirement. When you become enrolled in a workplace 401k plan, a small percentage of your paycheck automatically gets funneled away into your retirement nest egg.
Oftentimes, employers will partially (or fully) match your contributions to your 401k. If you’re torn between different job offers, this key benefit might be a deciding factor.
As an added bonus, the retirement money is deducted from your salary pre-tax, which basically means that you pay less income tax than you normally would. However, consider saving into a Roth 401k if you would rather pay taxes upfront.
#3 Look at Alternative Retirement Strategies
Retirement nowadays looks very different than it did thirty years ago. With the gig economy on the rise and a large portion of the workforce going freelance, fewer people have access to traditional retirement savings options.
If you’re looking for other ways to save money outside of a traditional 401k, check out these alternate strategies:
- Roth IRAs – A Roth IRA is a retirement account that holds your investments and is brokered at your individual bank, not through your employer. The growth of your Roth IRA account depends on the success of those investments. The upside of this account is that you pay income taxes going in, so all withdrawals thereafter are tax-free.
- Roth 401ks – While a traditional 401k is funded with pre-tax money, a Roth 401k is calculated post-tax. This means that it is ideal for those in a lower income bracket who plan on moving to a higher bracket upon retirement.
For those 62 years or older:
- Reverse Mortgages – Taking out a reverse mortgage means you are borrowing money for retirement. Basically, homeowners with significant equity are able to receive loans that don’t become due until the borrower dies, sells the house, or moves. See if you qualify by using a reverse mortgage calculator.
#4 Find Ways to Save Money
It’s never too late to examine your finances and see where you can reduce spending. Get that Excel spreadsheet up and running! The key is to start early and be consistent.
Here are some things you can do:
- Learn to cook instead of going out to eat.
- Cancel unwanted subscriptions and memberships.
- Cut costs on daily expenses like coffee, public transportation, and alcohol.
- Reduce your energy spending bill.
- Create and adhere to a weekly spending budget.
#5 Join Forces
Being married comes with financial benefits, too. Here are some ways you can plan for retirement as a couple:
- Spousal IRA – If you’re married, consider combining incomes with your spouse and getting a spousal Roth IRA. You can get one even if only one of you earns an income. Essentially, it allows one person’s income to contribute to both IRAs on behalf of a spouse.
- Open a joint savings account – Not only will this make managing your finances more convenient as a couple, but it will also make it easier for you to work together towards your retirement goals.
- Open a linked savings account – For couples who want to maintain their individual savings accounts in addition to opening a joint account, a linked account is a happy medium. This way, you can maintain your independent accounts while linking them to a joint account at the same bank.
Plan Early for Future Peace of Mind
While retirement might seem like a distant and abstract concept, you want to keep it present in your mind. Planning early will ensure your peace of mind for years to come—not to mention, the added awareness will give you a lot to look forward to!
No matter how much you earn or how close to retirement you are, these five tips will surely help you build your wealth and retire blissfully.
