A big long-term financial goal for many people is saving enough to retire happily. The good news is that the power of compounding interest is on your side, especially if you start young and stay consistent.
Thinking long-term can be challenging when you’re focused on other, more immediate goals, like starting a family, paying for education, or even making rent. In fact, many Americans save little—or nothing—for retirement. A 2019 report from the Federal Reserve stated, “Older adults are more likely to have retirement savings and to view their savings as on track than younger adults. Nevertheless, even among non-retirees in their 60s, 13% do not have any retirement savings.”1 A Q2 2020 Truist National Financial Confidence Poll found 28% of working Americans have no pension or retirement savings.
We all deserve to enjoy the comfort, confidence, and security of hitting our retirement goals. No matter where you are in your journey, you can jumpstart your retirement savings now by following this easy checklist.
You have a goal; now estimate how much money you’ll need each year of retirement. Tailor your retirement savings goal to your lifestyle by using the 80% rule—a common principle used by financial experts. Expect to spend as much as 80% of your current income each year in your retirement.
Once you retire from the workforce, expenses like payroll tax, commuting, and 401(k) contributions won’t need to be factored into your cost of living (hence the 80% figure), but everyone’s situation is different. It’s also a great idea to think through questions such as “Who else will live off my retirement?” and “What is my life expectancy?”
Generally, it can be beneficial to invest at least 10% of your income for retirement—more if you’re able or need to catch up—in a tax-advantaged account like a 401(k) or IRA.
Since retirement savings accounts are often tied to the stock market, it can be helpful to have your 401(k) and IRA invested across multiple industries and asset types using mutual funds and exchange-traded funds (ETFs). This may provide a more balanced approach to long-term growth as the market ebbs and flows—and can keep anxiety low if the economy dips.
Keep your cents and interest adding up by avoiding early withdrawals. Cashing out too soon should be avoided, since penalties can be steep and withdrawing may delay your progress toward retirement savings.
Removing money from a 401(k) while you’re still employed is usually done through a “hardship withdrawal.” These can come with certain additional taxes. Similarly, avoid taking loans against your accounts. Think of borrowing against your retirement like eating pizza with a fork: don’t do it if you don’t have to.