Saving for retirement is one of the most important things you can do for yourself. It is important to start saving as soon as you have your first real job. This will make it easier to save consistently, and it will increase the amount you save. As your savings grow, they will begin to earn more money and eventually will earn more each year than you are contributing to them. Here are some basic retirement savings rules that you should follow to make sure you reach your goals for retirement.
1. Set a Contribution Goal
Choosing how much to
save for retirement can seem daunting. Ideally you should be saving fifteen percent of your gross income for retirement each year. If you have an employer match, that money counts towards your goal. The percentage is a better guide, because it will increase the amount you save as your salary increases. This makes it easy to tell if you are contributing the right amount to your retirement. If you choose to save a specific dollar amount, then you will need to constantly evaluate it and make adjustments. You can gradually increase your retirement savings each year until you reach fifteen percent, especially if you are working on getting out of debt.
2. Choose Roth Over Traditional
If you have the option of choosing a Roth 401(k) or
Roth IRA over a traditional one, you should choose the Roth account. Many people think that a traditional account is better, because the contributions are tax-exempt. However, you will pay taxes on the money you withdraw from it when you retire. With a Roth account you will pay money on your contributions to the account, but the money you withdraw will be tax-exempt. Since your retirement savings will grow over time you will end up paying taxes on more money if you wait until you retire to pay your taxes.
3. Make It Automatic
The tax plan through your employer will make monthly automatic deductions with each paycheck. This makes it simple to sign up for your retirement contributions, and then keep contributing. If you are investing in an IRA account as well, you can set up automatic transfers into the account each month. This makes it easier to keep your contributions regularly. It will also help you qualify for a brokerage account at an investment firm.4. Understand Your Risk and Predicted Growth
When you are in your twenties and thirties you can choose a higher risk investment with a better rate of return, because you have time for the market to recover before you retire. As you grow older you should adjust your risk, so that you are in more conservative investments. These are less likely to lose money, and you will need to access your funds when you retire, and you do not want to risk that money.5. Keep the Money in Investments
When the stock market takes a hit, it can be tempting to pull all of your money out and transfer to something safe like a CD. This will hamper how much you can earn, and may negatively affect your retirement. Keep contributing to your retirement whether the market is up or down. The stock market will have periods where it drops, but overall it recovers and continues to grow. Your investments will recover and continue to grow as well.6. Take Advantage of Your Employer’s Match
The matching program offered by many employers is one of the easiest ways to increase your retirement savings. You should always contribute up to your
employer’s match, even if you are focused on getting out of debt or saving up for a home purchase. This is money that you do not have to contribute. If you have to wait to participate in your company’s retirement savings plan, then you should continue to save for retirement on your own with an IRA.
