- Dedicated retirement savings will give you much more control over your lifestyle in the future.
- Automating your savings will boost its growth. Set it and forget it. Then let it grow.
- Use compound interest to your advantage and earn money on top of money.
After crowning a career and decades of hard work, we should all be looking forward to retirement. This is the time when one can finally have time to relax and look forward to traveling and spending time with family and friends. But getting there will take a financial plan and the discipline to stick to 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 retiring or planning to retire later than expected. It is estimated that to maintain the average lifestyle until retirement, you need to have 70-90% of your pre-retirement income (your pre-retirement income is the money you earned while you worked before retirement) saved when you stop working .
Although there is a lot of anxiety and doubt about saving and retirement, it is essential that workers take the right steps to achieve their retirement goals. Here are some tips to get started.
Start saving for retirement as soon as possible.
Getting a head start on saving for your retirement gives you a huge advantage, says Kristen Ahlenius, director of education for Your Money Line, a company that provides financial solutions to businesses and organizations.
“Saving early for retirement isn’t just smart, it’s vital,” Ahlenius told Insider. “Compound interest is truly the eighth wonder of the world.” Compound interest is the addition of interest paid on the principal amount of a deposit. Basically, compound interest allows your wealth to grow faster.
Starting early gives your money a chance to work for you, and compound interest also helps savers fight value-draining inflation. Compound interest is especially important in periods of high inflation that have defined the economy in 2022.
“When you start early, you have the opportunity to take advantage of compound interest before life gets expensive,” says Ahlenius. “Let’s face it, let’s say you buy a house, it costs money, you expand your family, it costs money. So start saving before life makes it harder.
Automate your savings.
When it comes to managing your finances and saving for retirement, automating your savings can help you build wealth. More and more financial experts are recommending that you put your savings on autopilot to take much of the guesswork out of retirement planning and help workers focus on other important aspects of their lives.
“It really makes it easier to save when you set it and forget it. When you automate your saving, it becomes much more consistent,” says Ahlenius. One way to automate savings is to take money out of your paycheck or income that is directly deposited into your savings account on a recurring basis.
The key to success with your personal finances is not to make them complicated or difficult. A financial plan is a living, breathing document that adapts to your life. As long as you are honest about your money, your finances will grow with you.
Invest in your company’s 401K, especially if there is a match.
Investing in your company’s retirement plan is a smart financial decision. If there’s a match provided by your employer, it’s essentially free money that brings you closer to your retirement goals with every contribution.
“It’s the best way to start saving for retirement if you have that option,” says Ahlenius. “When we look at someone’s financial well-being, it’s very important to contribute to the employer plan at least until the game.”
For example, in 2021, 68% of private sector 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 for your retirement. By contributing regularly to this account, you can grow a significant retirement amount through your workplace pension plan.
Reduce or eliminate housing expenses before retirement.
Housing expenses are usually where most of our income goes. And as you head into retirement, the goal is to grow your money, not the other way around.
“It’s almost perfect financial advice,” says Ahlenius. Eliminating housing expenses frees up so much money you can use during your retirement. Although housing is usually expensive and paying off a home can seem daunting, changing your perspective and making buying a home part of your financial plan from the start is one way to help savers achieve their retirement goals.
“A lot of us are overhoused, which means we have too much house and we spend too much on housing,” says Ahlenius. “Starting with a smaller mortgage can be crucial to your retirement journey, especially when you’re young.”
The maintenance of housing costs – especially after buying a house – is something that becomes stable and predictable when the prices of all other consumer goods increase. And while many workers feel like their income will only increase over time, it’s best to be cautious and conservative when it comes to saving.
“Don’t assume your income will go up in your mortgage payment,” says Ahlenius. “Assume it won’t.
Saving for retirement doesn’t have to be complicated, but it should be consistent.
“You don’t have to invest in obscure stocks in the hope of making a million dollars to retire well,” says Ahlenius.
Stick to sound financial advice. Good financial advice is timeless. Remember: don’t complicate things too much. Start saving. Save early and stay consistent.