Wondering how to save for retirement, but not sure where to start? The best time to start planning for your retirement is…yesterday. If you haven’t already started thinking about the future, now is a great time to do so!
Learning to manage money in your younger years can help prepare you for a successful retirement. This typically consists of setting savings goals, budgeting, opening retirement accounts and other money management moves.
Everything you do as a working adult affects your financial health during retirement. If you’re looking for tips on how to save for retirement, just follow these five easy steps.
1. Determine your retirement age.
Full retirement age (FRA) is the age at which you are entitled to receive full Social Security benefits from the Social Security Administration (SSA). Each year you work and pay Social Security taxes, you earn work credits that qualify you for retirement benefits upon reaching FRA. If you were born in 1960 or later, FRA is 67 years of age. You can choose to retire early, but will not receive full benefits. Likewise, you can retire later and delay your benefits, which could increase the number of benefits you receive.
2. Estimate your financial needs in retirement.
Knowing how to budget and save money now could prevent you from running out of money during retirement. The amount of money you need during retirement depends on your current income and expenses. It also depends on how your needs will change. Most retirees need between 70 and 90% of their annual income during retirement.
3. Balance your financial goals.
The key to managing money properly is to not put all your eggs in one basket. Although it’s important to start saving for retirement, it’s also important to pay off current debts and remain in good financial standing.
4. Choose a retirement plan.
As you learn how to save for retirement, you will likely come across various types of retirement plans and savings accounts. For example, a 401k is a popular retirement savings plan offered by employers. However, there are several other types of retirement plans to consider, such as:
- Roth IRA
- Traditional IRA
- Rollover IRA
- Social Security benefits
5. Choose your investments.
The money you put into a retirement plan, such as a Roth IRA, does not just sit idly in a savings account. Instead, the money is invested into the stock market. Depending on your plan, you may be able to choose your investments.
Now that you know about investments, which type of investment account would be best for your retirement? Find out on the next slide.