Saving for retirement is no joke, and the sooner you start thinking about it the better. It’s impossible to just retire and live comfortable on Social Security. In fact, for many younger people, Social Security likely won’t be around to help out. That means it’s time to start thinking seriously about saving up for your retirement. Here are some of the best ways you can start saving for your retirement.
There’s literally never a bad time to start saving for your retirement. The sooner you get money into a retirement account, the sooner that money can start accruing interest and making money for you. Accruing interest is one of the best things your money can do for you: the more money you have in an account accruing interest, the more the effect snowballs and makes you even more money. It’s a win-win to invest earlier, rather than later.
For instance, if you begin saving for retirement at age 23, right out of college, and put only a small portion of your paycheck into savings, you’ll begin accruing interest right away. Depending on the amount of interest, you might even outpace the savings of someone in their 30’s who begins saving with much more of their paycheck, since you’re going to have nearly ten years of a head-start on them!
Prepare For a Long Retirement
Advances in medical technology, improving diets and better overall public health mean that the average person is simply living longer than ever before. This means that most healthy retirees can expect to live well into their 80’s, and even their 90’s. This means that you need to be prepared for a long retirement when you’re saving and considering your retirement income.
This means that you’re going to need to consider nearly 30 years of income in your retirement savings. That’s a lot of years not working while still having to cover all of your needs! Without proper planning, this means you could end up simply running out of retirement savings and having no way to bring in any money.
Don’t Forget Inflation
When you’re considering such a long retirement, it’s also important that you remember inflation rates. Even a modest 2% inflation rate can really add up over the course of 30 years. For instance, if you wanted to buy something today that costs $5,000, you’d need $8,200 in 2050 dollars at a 2% inflation rate.
This means that you should not only plan for a long retirement, but factor in several thousand more dollars than you think you’ll need. The longer your retirement goes on, the more an ever-increasing inflation rate impacts your savings and eats away at your retirement funds.
A Long-Term Plan
This all means you need to work with a financial advisor and figure out a way to invest your money in such a way that it keeps working for you over a very long period of time. This likely means that you could be more aggressive with your retirement savings even into your 50’s and 60’s than prior generations were. Since you’re going to be living longer, on average, you’re simply going to need more money.
Also make sure that any strategy you end up employing gives you ample flexibility to react to changing situations. You’re going to have to stretch your income stream over the course of nearly 30 years, so you want to make sure that you’re able to respond to changing market and your own changing lifestyle.
In short, consider thinking about your retirement differently than prior generations have. You’re going to need a lot more than you think you will.