Retirement is unavoidable. It might be decades away but people will eventually reach that stage. As such, it is a must to prepare for it early on and the best way to do it is by saving money. Even those who are still in their 20s are encouraged to consider retirement planning while employed.
Not many young people know that retirement can be an expensive phase in a person’s life. Take note that most seniors are no longer working at this stage hence, they need to fend for themselves and their partners using their personal savings. But when one saves early, he or she can enjoy bigger savings in the future as his money earns through time.
One study done by Hewitt Associates has found that only 31 percent of Generation Y workers or those born in 1978 or later are contributing to a 401(k) retirement savings plan. This figure is less than half of the 63 percent of workers aged between 26 and 41 who invest in a savings account sponsored by employers.
Here then are five easy ways to start your retirement planning and ensure your financial security in the future.
Save As Soon As Possible
If you have not developed the habit of saving, it’s never too late to start now. Start by saving small amounts and eventually increase them each month. And once you have started, continue with it because it has great benefits that you can enjoy in the future particularly when you retire. You can even create a plan and set goals to guide you.
Contribute to a 401(k) Plan
Do think about your retirement as well and if possible, make this a priority. One effective way of securing your retirement is by contributing to a 401(k) plan. Those who are employed should take advantage of this as it can save you money while your contribution that gets deposited directly into the plan is still not taxed.
Normally, 401(k) contributions are done through automatic deductions from your monthly salary and your employer also matches the amount you put in. The benefit here is your money grows overtime via compound interest and tax deferrals.
Put Money into an IRA
Those who don’t have an opportunity to take advantage of a 401(k) plan can start their own individual retirement account (IRA). Basically, there are two types – the traditional and Roth IRA.
The traditional IRA allows individuals to deduct their contributions from their income every year. Any withdrawal, however, will be taxed. Also, you need to pay taxes on the contribution and any gain it earns while your money is still being invested. With Roth IRA, the money you contribute is after-tax cash and the benefit is you need not pay taxes when you withdraw your money during retirement. Various websites are available today that offer an IRA investing guide hence, make sure you do your research.
Invest in Financial Products
Investing in other products is also an ideal move. It is one way of diversifying your savings, reducing risks and improving return on your investments. Some young people prefer to invest in bonds while the others put their money on stocks or equities.
Mutual funds are a good form of investment as well. They can be a combination of stocks and bonds. The lifestyle or life-cycle mutual funds are best for the novice savers particularly the young ones in their 20s.
It is also a good idea to learn about the investment options of your retirement plan. Don’t hesitate to ask questions because you have every right to know where your savings are going.
Stay Away from Debt
Finally, make it a point to avoid debt at all times. Again, it’s never too late to change your spending and saving habits. As early as possible, settle your debts and use your credit cards wisely. Discipline is key to enjoying financial freedom and security now and in the future.