There is no such thing as too early or too late to start saving for retirement. Of course, the earlier you start, the better off you will be in the long run, but any hesitancy right now is completely unjustified. You should start saving for your retirement right now if you are not saving already. While nobody likes to think about it, a day will come when you do not want to work or you can’t work anymore. When we think about saving for retirement, most of us imagine living a life free of responsibilities – something that only the wealthy can afford to do or only older people have to worry about. But everyone should be worried about what they will do when they can no longer bring in a steady income.
What is retirement, really? We’re all getting older all the time, and there’s no way to stop that process. Retirement is the way we talk about what we will do when we are no longer working. In the United States, there is no way to live cheaply enough to survive on Social Security alone, so you have to have a secondary source of income. Many people ensure they can live cheaply by focusing on paying off a mortgage. If you own your home you will not need to make those monthly payments.
But you still need to find a way to buy food and do the things you enjoy doing, like go to the movies, buy books or whole seasons of your favorite TV shows, or travel and spend time with your loved ones. Everything you do costs money, and people take for granted how much money they will need to retire happily. Yes, one day you will need that money more than you think you need it now.
There are many routes to ensuring that you have enough money to retire whether you want to or need to retire. If you are employed full-time, it is likely that you have the option to invest in a 401(k) plan. Some employers offer matching, which is free money and you should maximize that benefit. Even without matching a 401(k) plan is a great way to put away money for the future. Your contributions to your 401(k) will come out of your paycheck before taxes are taken out, which means you pay no tax on income that you save for retirement.
Alternatively, anyone can open an IRA. IRAs are designed for people who want to save for retirement and get a tax benefit, but do not have the option of a 401(k). If you open an IRA, you can contribute as much as $5,000 per year (depending on your age) and then you can claim that savings on your tax return. There is a maximum amount that you can claim as a tax write-off, so find out what that is if you are hoping to get a bigger write-off than is legally available.
Both 401(k)s and IRAs are designed to encourage you to save as well as discourage you from taking that money out before you turn 65. If you want to withdraw the money early, you can, but you will pay an incredibly tax to do so. As much as 30% of the total can be withheld as a penalty for early withdrawal.
Retirement savings plans have other benefits as well as pitfalls. If you want, you can invest your retirement contributions in stocks and bonds, and the amount of risk you take depends on you. When you sign up for an IRA or 401(k), you have the option to invest in an array of products. If you choose a risky portfolio, you may lose your retirement funds if that risk turns out to be a bad choice, and it may take a lot of time for you to earn back the total and earn more on top. If you choose a safe portfolio, you can expect that money to slowly grow over time. Most people choose a portfolio that balances the slow but steady safe investments with a few risky but potentially fast-growing investments.
For most people, the amount of risk they are willing to take depends on the time they have until they retire. We are all expected to retire around age 65, but the fact is that many people retire earlier or even later, depending on their industry, experience, and need. If you don’t save enough for retirement, you may find yourself working into your 70s, which leaves you less time to enjoy life. Retirement should be a time when you can relax and soak up the fruits of yor labor. Saving so that you can go do the things you’ve always wanted to do should be a very high priority, and the sooner you start, the bigger that pot of cash will be when you do retire. So get going! Start saving for retirement right now!