Retirement, about a million dollars – at least. Being a full time grandma, cruising the world, and not having to get up at 6:00 a.m., PRICELESS. Are you wondering when you should start saving for retirement? Are you not sure if you should save for your child’s college or your retirement first? Are you pondering if you’re saving enough for retirement? Here are some tips on retirement saving that might help you.
An quick answer to the question is that it is never to early to start saving for retirement. The earlier you start saving for retirement, the more financially stable you will be during your golden years. It is never too soon to set up an ERA (retirement savings account) and start contributing to your future.
However, this decision should also be based on how much debt you have, whether you own a home and if you have the money to do so. Obviously, expenses such as having a baby, replacing your leaking roof, and finishing a college degree should come first.
The size of your nest egg will be substantially greater the earlier you start saving. Let’s say you start saving for retirement at 21. Suppose you put aside $100 / month every year from age 21 to 65. (Obviously, as you get older, you will save more, but for this example, let’s say its consistently $100/month.) If your ERA earns 8% interest over the course of 44 years, your nest egg will be $527,454 at age 65. If you wait until you are 30 to start saving, at 8%, it would be worth $229,399. Even though you only waited 9 more years to start saving, your retirement account would be less than half of what it would be had you started saving earlier.
For another illustration, let’s say “Mrs. Smith” was able to save $275 /month for retirement starting at age 30. However, “Mr. Smith”, started saving at age 45 with $400 month. At age 65, Mrs. Smith’s IRA would be worth $515, 318. Mr. Smith’s account, would only be worth $235,609. (These examples use 8% interest rate as an example. It could be higher, or possibly lower, depending on your financial portfolio.
Ideally, when you save for retirement, you want to be able to live off of the interest of your nest egg. Therefore, you may need at least a million dollars or more in your IRA. Some experts say you shouldn’t even count on social security being around. The Social Security Administration reports that “even if modifications to the program are not made, there would still be enough funds in 2037 from taxes paid by workers to pay about $760 for every $1,000 in benefits scheduled.” (Source: 8/09 edition benefits letter from the SSA)
Are you thinking you can’t afford to save for retirement because you need to start saving for college? Financial experts will tell you that you must save for your retirement first, before saving for your child’s education. There are many ways you can pay for college including loans, scholarships, working part-time, going to a community college for a few years first, etc. However, there aren’t other ways you can pay for retirement. You cannot take a loan out to fund your retirement. But your child can take loans out to pay their college expenses.
Do you think you will never want to retire? That’s wonderful, however, remember you might not have a choice in this. You could become very ill and be unable to work for health reasons. (Just a side note: you also might want to invest in long term care insurance when you are older.)’
Financial guru Dave Ramsey suggests that you meet “baby steps” before you start saving for retirement. He believes you should have all debt paid off except the mortgage before you start saving for retirement. He suggests you contribute at least 15% of your monthly income to a ROTH IRA before you start saving for college. His plan has been very successful for many, however some will disagree that if your company matches contributions to a 401k, then you should be taking advantage of the matching contributions.
It is very wise to speak with a financial adviser to gain insight and expert advice on your financial future. You can find one through Dave Ramsey’s website (www.daveramsey.com) or ask friends and family for recommendations.
If you are young and reading this, take this article as an encouragement to start saving for retirement – even $25/ month can help. If reading this article has made you very depressed, don’t fret. It might mean you will have to work longer than you planned, and perhaps downgrade homes and your lifestyle, but stressing about reirement is not worth it. Try to be proactive and do what you can, but worrying about it is not good for your health. If you are trying to get out of debt, be sure to check out “How to Get Out of Debt: Tips for Credit Card Debt Relief.” If you think you could benefit from some online support and help, read “Debt Support Groups: Find Credit Card Debt Support Online.” You might also want to read “How to Save for Retirement When You’re Broke.”
Good luck as you make decisions for your financial future.
