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Credit Wise
Breaking Through the Retirement Rhetoric
When retirement
is literally a lifetime away, it can be hard to motivate yourself to start
saving for it. When it seems so far away, many items such as houses, cars, and
kids seem to take priority. It is best to stop putting it off and just start
doing it. If you wait until you have "extra" money, you’ll never get
started. Retirement will be here before you know it. More...
If your only retirement plan is Social Security, I think it is time to get a new plan. It just won’t cut it because it just isn’t enough money. Here are some tips to begin your retirement savings: Start as early as possible:
Due to the magic of compound interest,
the earlier you start the more you will have. For example, if you put $2000 per
year from age 22 to age 30 into an IRA but never save another dime; you will
have $580,000 when you turn 65. If you wait until you are 30 to start saving,
you’d have to save $2000 every year until you are 65 and you’d still only
have $470,000. (Based on 9% return).
Don’t get discouraged if
you’re older than 22: So, you missed the
window mentioned in the above example, it’s OK. Just start doing it. No matter
how small, start sinking some money into a retirement account. Start now and
increase your amount when you can. Talk to your HR Department:
If you have not already been informed about
your employer’s retirement plan, it is time to ask. They should be able to
tell you what type of retirement benefits they offer. Most offer a 401k plan,
which is simply a term for an employer sponsored retirement account. Many
employers match the amount you put in up to a certain percentage of your income.
For example, if you start by contributing 3% of your income, many employers will
also contribute 3%. That is like giving yourself an instant 3% raise! Another
cool thing is you’re your contribution is pre-tax. That means that you don’t
get taxed on that amount of your income. So, chances are that you won’t notice
much of a decrease in your take-home pay. If your employer does not offer
retirement benefits, talk to a financial planner or retirement investor about
starting your own IRA. If the only IRA you know
about is the Irish Republican Army: Don’t be
intimidated if retirement fund terms are all foreign to you: I didn’t know
anything when I first started either. Now that I have learned more about it, I
am so thrilled to receive my quarterly statement to see how much my fund has
grown. Oh and by the way, IRA stands for Individual Retirement Account. Does vesting mean they’re
going to dress me funny? You may hear the term
“vesting” when you start exploring retirement funds. It means the part of
your account that is yours to keep, should you leave the company. The part that
you put in is always 100% vested which means that if you leave, you get to keep
it. The employer’s portion of your account may be something that you have to
earn over time. If you left after 4 years, you may only get to keep a certain
percentage of the employer’s contribution. After several years, you will be
fully vested and the contribution that your employer made will also be yours to
keep. How much should I
contribute? Many employers have limits on what
they will match and may limit how much you can contribute. If you are in a
position to do so, at least put in as much as your employer will match. For
example, if they match up to 6% of your income, strive to contribute 6% of your
income. Beyond that, you may choose to diversify with your own IRA in addition
to your employers 401k. When you get a raise, increase your contribution. If I have not yet inspired you to get serious about retirement, think about this. When you reach retirement age, you may still want to work for a while longer and that’s OK. However, be realistic and realize that you may not have as much spring in your step as you do now. You may have a lot more health issues and be unable to work. You don’t want to drag your aching bones out of bed every morning when you’re 70 because you need the money. Work and save now, while you can, so you can enjoy the golden
years. * * *
Copyright © 2007 by Jennifer Wallis. All rights reserved. Want more money-saving tips? Get a FREE Subscription to our monthly newsletter!
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