Another tedious 9-5 work day and you are day dreaming of the freedom of retirement. You imagine different ways to spend your day, food to try and new and exotic places to explore. Then the question of how you will afford to live this way arises. The question is, when should you start saving? To have a comfortable amount to live on after you retire, you should start saving as early as possible, even if you’re in your 20’s. Saving needs to be understood as a marathon, not a sprint.
How to Start Saving
Start with what is given to you already. If your employer offers a 401k plan, highly consider taking it and invest as much as the 401k match can offer. With the 401k match, the employer is offering to give you free money up to what you have already invested. Take full advantage of what your employer has to offer. If, during your career you decide to switch employers, your 401k is not forgotten. There are generally three routes to take; intentionally leave it behind, cash it out or roll the funds over into a new 401k if your new employer offers one. Your goal is to save for retirement, so typically rolling the funds into the new 401k is the most common and effective. Leaving it behind is something you want to try and avoid. It leaves room for it to slip from your memory and what you may forget what you are entitled to. If you choose to cash it out, which is not uncommon, you are looking at getting taxed 10-20%. Rolling it over is tax free and will help you stay in control and aware of your 401k.
Your employer doesn’t offer 401K?
If your employer does not offer a 401k, don’t fret. There are many other options you could consider to help with your savings. Consider investing in indexed funds and not actively managed funds. Investing in mutual funds in the long run will yield a better return due to lower fees and less tax. When investing in mutual funds, try to avoid a sales commission. Stray away from actively managed funds as they have higher fees and tax and are riskier in general.
Financial planning and saving are essential to having a comfortable retirement. If you want to ensure you have money, keep in mind stable and consistent return. Financial planning is just that; it’s just planning. Keep in mind your own guidelines to follow and stay aware, and on top of your investments. Take advantage of all the opportunities throughout your career to put aside money and start saving as soon as possible. Having time on your side by starting early can make retirement a less daunting concern and you can start to focus on how to spend the golden years of your life.