Adulting is hard, and it makes it difficult to think past the “here and now.” With retirement decades away for those in their 20s and 30s, planning might not be high on the priority list. The problem with this mentality is that it can drag on for years or even decades.
According to the Motley Fool , a whopping 29% of workers say they have not saved for retirement at all! Regardless of whether or not they have saved for retirement, 48% have no stocks or stock mutual funds, either inside or outside of a workplace retirement savings plan.
In any case, here are 3 ways to start focusing on retirement planning before your 40s:
1) Get Started with Automatic Contributions
Saving for retirement in your 20s and 30s can have a big impact on your quality of life in retirement. A dollar invested in your 20s is more valuable than a dollar invested in your 50s because the dollar in your 20s has more time to benefit from compound interest. In short, simply getting started with saving for retirement will be extremely beneficial.
The first thing we should do when it comes to retirement planning is open a retirement account and set up automatic contributions. If your employer offers a 401k or 403b retirement plan, it typically is very easy to set up automatic contributions each paycheck. The benefit of being on an employer retirement plan is that they often will match contributions up to a certain percentage. Make sure you contribute at least that much or you are missing out on “free” money.
2) Increase the Amount Contributed Over Time
Besides getting started, it’s important to increase the amount you contribute to a retirement account over time. The main tenant of retirement planning, namely “get started,” gives people a pass on how much they are contributing. After all, contributing even 2% of your income is better than none at all. It’s important to slowly increase this percentage over time; especially if you’re in your 20s or 30s.
There are some very practical ways to do this. For example:
- Raises/Increased Income – When a raise or promotion happens, don’t let it all be lost to lifestyle inflation. Instead increase the amount you contribute to your retirement account.
- Debt – Finally finished paying off a loan? Use a portion of this new cash flow to increase your retirement contributions.
Whatever you need to do to increase your retirement contributions over time, do it! While increased income and recently paid off debt are two great sources of cash flow for retirement savings, they certainly aren’t the only sources of retirement funds. Take a hard look at your finances from time-to-time and ask yourself: can I divert additional funds to retirement accounts?
3) Make time for Retirement Planning
Let’s face it: making a detailed plan for something that will happen 30+ years down the road seems unrealistic. Instead of focusing on the unknowns, focus on your goals for retirement. High-level planning is possible, even in your 20s and 30s!
You may be going through a lot of changes at this time in your life: buying a house, starting a career, getting married, having children, graduate school, etc. Who has time for retirement planning?
The short answer: YOU DO! Schedule a complimentary financial review with Investment Services to discuss your retirement concerns and solutions. Setting aside even a few hours a year can help you be much better prepared for retirement than you ever thought possible.
Are you already planning for retirement? What strategies have you found to be successful? Tell us in the comments.