Fortunately, there are simple ways to save, many of which you can automate and forget about, letting the money add up.
Let’s dive into the different ways to save for retirement.
First, know your ‘why.’ It helps keep you motivated and on track. This is especially important when saving for retirement, which for many people is 30 or more years away.
Saving now for retirement sets you up for the future. You have no idea what’s coming your way – what expenses you’ll have or what tribulations life may throw at you. When you save now, you give your earnings time to grow. Compounded interest and dividends are your best ally right now.
Try saving 15% of your gross income for retirement. This won’t happen overnight, so work your way up to it. Figure out how much of your budget you can set aside now. Even if it’s 1%, 2%, or 5%, save what you can.
You have a few options, which we’ll discuss below, but always start with your 401K employer’s match. That’s like free money – don’t give it up. If your employer matches 3% or 5% of your salary, make sure you save at least that much each year. Your employer automatically withdraws the funds from your paycheck – all you must do is set it up.
We covered your employer 401K above, but it’s worth mentioning again. At least match your employer’s contribution. 401Ks often have fewer investment options, so you’re at the mercy of what they offer, but it’s important to take advantage of.
Once you match your employer’s contribution, open an IRA. You’ll have more investment options (freedom) with an IRA. But, you’re limited to the annual limits, which for 2020 is $6,000.
After matching the employer contributions and maxing out your IRA, if you still have money left, go back to your 401K. They have higher investment limits – for 2020, you may invest up to $19,500.
If you’re unsure how you’ll save for retirement, use these simple tips:
Learning how to save for retirement isn’t as hard as it seems. Start small and with your employer-sponsored 401K. From there, work your way up contributing more and opening other retirement accounts to maximize your spending potential during your golden years.