For the tip of the week this week we’re going to cover a topic that seems like it’d be common sense but according to a number of studies that have been done recently people are still not taking this common sense tip to heart and for many of them, the penalty is working well into their “Golden Years”. The tip is simple; the sooner you start saving, the better. That means no matter what age you are right now, you need to start saving for retirement.
According to a recent Washington Post article Teresa Ghilarducci, the director of the Schwartz Center for Economic Policy Analysis at the New School for Social Research said that, “This is the first time that Americans are going to be relatively worse off than their parents or grandparents in old age.”
That simple fact should be enough to kick the younger generation into gear. Experts are now saying that if you’re not starting to save for retirement by the age of 30 you’re already behind. Kevin Luss of the Luss Groups says that, “If you start at age 30 you have to put 10% of your income away as a benchmark. If you start at 45 you have to put 50% of your salary.” While it makes complete sense on paper it’s the real world application that becomes difficult for younger people.
With the current status of the economy and the rate at which college and university tuition’s have inflated most 30 year olds are more worried about the mountain of student loan debt that they face along with the fact that there aren’t as many jobs available as they thought there would be as they worked tirelessly to earn their degrees. All of this goes without mentioning the fact that most 30 year olds are starting to give at least some consideration to settling down with that special someone and starting a family. Combine the expenses of student loans with starting a new family and setting aside 10% of your income can be incredibly difficult to think about.
So what are the best options to start saving?
While there has been some debate in recent years as to whether or not 401k plans are still a viable means of saving for retirement but financial experts are still recommending that the 10% that you save each year should be going into your 401k. There are several reasons for this, one being that you’ll be less tempted to remove the money from a 401k and the other huge factor is that a lot of companies offer a matching program for a portion of the employee’s savings, if that’s the case with your employer you should at least make a goal of setting aside the maximum amount that your employer is willing to match, for example if your employer is willing to match 3% then you should shoot for that same amount.
Stick With an IRA
While starting to save money when you’re young is a great move there are also some downsides. If you start to save when you’re 30 you’re more likely to take higher risks or to continuously chase the best stock. By always chasing the hottest stock rather than slowly and steadily setting aside savings you may end up finding yourself worse off than when you started and several years behind the curve. Rather than chasing hot stocks it’s recommended that you set up an IRA because the money can go tax free until you are 59 ½ years old and you can start with as little as $50. If you set up your accounts to deposit $50/month you’ll be shocked to see how quickly your IRA will grow.
There are hundreds of ways to save for retirement; the key is just to start soon. If you play your cards right now you will set yourself up for a much more comfortable retirement several years from now.