- Dedicated savings for retirement will give you far more control over your lifestyle down the road.
- Automating your savings will supercharge its growth. Set it and forget it. Then let it grow.
- Use compound interest to your advantage and make money on top of money.
After capping off a career and decades of hard work, we should all be looking forward to retirement. It’s the time where one can finally have time to relax and look forward to traveling and spending time with family and friends. But to make it to this point will require a financial plan and discipline to stick with it.
Recent polls from Gallup indicate that having enough money for retirement remains a concern for nearly half of working adults while more people are – or plan to – retire later than expected. It’s estimated that to maintain the average lifestyle into retirement, one will need to have 70 to 90 percent of their pre-retirement income (your pre-retirement income is the money you made while you were working prior to retirement) saved when you stop working.
While there is much anxiety and doubt around saving and retirement, It’s crucial that workers take the right steps to make their retirement goals a reality. Here are a few tips to get started.
Start saving for retirement as early as possible.
Getting a head start on saving for your retirement gives you a huge advantage, explains Kristen Ahlenius, director of education for Your Money Line, a firm that provides financial solutions to businesses and organizations.
“Saving early for retirement is not only smart, it’s vital,” Ahlenius tells Insider. “Compound interest really is the eighth wonder of the world.” Compound interest is the addition of interest paid on the principal sum of a deposit. Basically, compound interest allows your wealth to grow faster.
By starting early, you give your money a chance to work for you and compound interest also helps savers beat value-draining inflation. Compound interest is particularly important in high inflationary periods that have defined the economy in 2022.
“When you start early you have an opportunity to take advantage of compound interest before life gets expensive,” Ahlenius elaborates. “Let’s face it – say you buy a home; it costs money, you expand your family; it costs money. So start saving before life makes it more difficult.”
Automate your savings.
When it comes to managing your finances and saving for retirement, automating your savings can help you build wealth. More financial experts are recommending that you put your savings on auto-pilot to take a lot of the guesswork out of retirement planning and help workers focus on other important parts of their lives.
“It really does make saving easier when you set it and forget it. When you automate your savings, it becomes a lot more consistent,” Ahlenius says. One way to automate savings is by having money come out of your paycheck or income that is directly deposited into your savings account on a recurring basis.
The key to being successful with your personal finances is to not make it complicated or hard. A financial plan is a living, breathing document that adjusts as your life does so as long as you are honest about your money, your finances will grow as you do.
Invest in your company’s 401K, especially if there is a match.
Investing in your company’s retirement plan is a smart financial move. If there is a match provided by your employer, this is essentially free money that is moving you closer to your retirement goals with each contribution.
“This is the best way to start saving for retirement if you have that option,” Ahlenius explains. “When we are looking at someone’s financial wellness, contributing to the employer plan at least up to the match is very important.”
For instance, in 2021, 68% of private industry employees had access to retirement benefits through their employer according to the Bureau of Labor Statistics. Investing in this plan will help you save as much money as possible toward your retirement. By consistently contributing to this account, you can grow a significant retirement amount through your workplace retirement plan.
Reduce or eliminate housing expenses going into retirement.
Housing expenses are typically where the largest portion of our income goes. And when heading into retirement, the goal is to have your money working for you, not the other way around.
“This is almost a perfect piece of financial advice,” says Ahlenius. Eliminating housing expenses frees up so much money for you to use during your retirement. While housing is typically expensive and paying off a house may seem like a daunting task, changing one’s perspective and making the purchase of a home a part of your financial plan from the start is one way to help savers reach their retirement goals.
“So many of us are overhoused, meaning that we have too much house and are spending too much on housing,” Ahlenius says. “Starting with a smaller mortgage can be crucial to your retirement journey especially when you are young.”
Maintaining housing costs – particularly after a home purchase – is something that becomes stable and predictable when prices for seemingly every other consumer item increases. And while many workers may be under the impression that their income will just increase over time, it’s best to be cautious and conservative when it comes to saving.
“Don’t assume that your income will grow into your mortgage payment,” Ahlenius says. “Assume that it won’t.”
Saving for retirement does not have to be complicated but it does have to be consistent.
“You don’t have to invest in some obscure stock hoping to make a million dollars to retire well,” explains Ahlenius.
Stick to sound financial advice. Good financial advice is timeless. Just remember: Don’t over complicated it. Start saving. Save early and stay consistent.