How To Save for Retirement Regardless of Your Income
“Retirement is so far away, and I’m not earning much money yet,” is how the thinking often goes. “I’ll start saving for retirement when I’m earning more later in my career. Besides, what’s the hurry?”
"While it may be true that many young people are not in their peak earning years yet, and retirement is still decades away for them, this doesn’t make it any less important to start saving for retirement as soon as possible," says Martin Walcoe EVP of David Lerner Associates, a broker/dealer with headquarters in Syosset, NY. " In fact, due to the power of compounding interest over time, the early years of a young person’s career may be the most critical when it comes to accumulating a sizeable retirement nest egg."
Here are four steps to help you save money for retirement regardless of your income or age:
1. Get in the game.The first step in saving money for retirement is to either participate in your employer’s retirement savings plan or open a retirement savings account (like an IRA) on your own. Talk to your human resources department about what kind of retirement plan (if any) is offered by your employer — such as a 401(k) or 403(b) plan — and how you can sign up for it.
If you don’t have access to an employer plan, you can open your own IRA with a bank or investment advisor. Talk to your advisor about the differences between traditional and Roth IRAs to determine which option might be best for you.
2. Establish a budget.Next, you need to create a household budget in order to free up some money that you can contribute to the plan. In establishing a budget, start with your income and then plan your expenses around this, rather than the other way around. Otherwise, it will be much harder to carve out some retirement savings.
With a budget in hand, you can see how much money is available after you have met your basic living expenses to possibly contribute to your retirement plan. Keep in mind that retirement savings aren’t the only kind of savings, though — some experts also recommend creating an emergency savings fund you can tap to cover unexpected expenses like car and home repairs.
3. Determine how much to contribute to your retirement account.Now you can decide how much of the money that’s available after expenses you want to contribute to an emergency savings account, your retirement account, or any other financial priorities you may have (like paying down debt).
Some experts recommend contributing a set percentage of your income each month to your retirement account, even if it’s a very low percentage as you’re getting started. This way, your contribution amount will automatically rise as your income rises. You can increase the percentage along with increases in your income in order to boost retirement savings even more.
4. Sign up for automatic contributions to the plan.Also known as “paying yourself first,” this is one of the easiest ways to contribute to your retirement plan because you don’t have to think about it — or be tempted to spend your contribution on something else. Through your bank or your investment advisor, you can arrange for your contribution amount to be electronically transferred from your checking account to your retirement account on the same day each month, which also makes budgeting easier.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. Member FINRA & SIPC