Planning for retirement doesn’t exactly top the list when you’re young and still figuring out what you want to be when you grow up. It can even be more challenging to tackle in middle age when its inevitability becomes much more pressing, so don’t put yourself behind the curve and wait until retirement is looming to start saving. Arm yourself early with the knowledge and tools needed to float off into the sunset without financial strain taking the wind out of your sails.
Better Safe Than Sorry
When we are just starting out, it is easy to tell ourselves that once we’ve spent some time in our career and the money really starts rolling in, we will take the proper steps toward saving for retirement. Here’s the problem with that mentality: nothing is guaranteed. Your employer might shut its doors. You could get sick or injured with a mountain of medical expenses. You might decide to begin an entirely new profession and start from the bottom up. It is dangerous to assume a better financial position is waiting down the road when no one can see what’s actually up ahead. Start saving now, however much you can, to help buffer any bumps you might not see coming.
A Little Now Goes a Long Way Later
It is amazing how big of a difference a few years can make when it comes to compound interest. The money you invest in your retirement now has the potential to earn a lot more over time as the interest is reinvested. The longer your money stays in the markets (providing the markets are healthy), the higher that money will grow. Regardless of the plan you choose, take some time to play around with a retirement calculator to really understand how small deductions now can grow into large payoffs later.
Understand Your Options
There are multiple avenues to explore when saving for retirement, so it is good to have a basic understanding of the most common options. If your employer offers a specific plan such as the standard 401(k), 403(b), or Simple IRA, start there. These are easy to set up, and most of the time, your HR Department handles the heavy lifting; all you have to do is tell them how much you want to contribute each pay period. And don’t be shy – if this is uncharted territory for you, sit down with your Benefits Coordinator and have them walk through the process, highlighting any match incentives the company may offer (more on this next). If you are not eligible for retirement benefits through your employer, an IRA or a Roth IRA is likely your best bet and most banks or financial advising firms can get you up and running in no time.
Always Max the Match
Always! This is free money - plain and simple. With any type of matching program, your employer is basically offering you a raise that you can cash in down the road when you really need it. If the company is willing to match your contributions up to 6% of your salary, make sure, you are putting in the whole 6% to avoid leaving any money on the table. Employers have varied ways of devising their match programs, but Investopedia offers a helpful overview to better explain how this works.
Understand Your Vesting Schedule
Some employer-based accounts rely on vesting schedules to ensure employees remain with the company for a set amount of years before their employer contributions are essentially released. This additional caveat helps protect companies from paying out retirement benefits for short-term staff members and is important to understand when deciding to jump ship before being fully vested. You could be throwing a considerable amount of money away should you fail to meet the company requirements. Make responsible choices when deciding when to call it quits if you are just shy of your time and take an in-depth look at vesting schedules before making any moves.
Think of it as a Travel Budget
…because it essentially is. If you get it right and save enough coin, you can actually visit all those awesome places you keep dreaming of once you don’t have to work anymore. Better yet, don’t even call it your “retirement savings.” How boring! “The Fiji, Here I Come Fund” or “My Around the World in 14,600 Days Account” is much more exciting. Sometimes all you need is the right motivation.
Retirement might seem like a world away from your current position slinging letters in the mailroom, but if you’re not careful, you might find yourself working long into the days when you should be kicking back to relax. Start planning for the future now while time is on your side. The lounging gray-haired retiree on the sailboat heading for the horizon thinks it’s a good idea, too.