Setting up a successful retirement
For many younger workers, retirement may seem far off but there are important steps to take at every age to set yourself up for a successful retirement. Financial expert Barry Bigelow discusses helpful savings and explains the key mistakes to avoid in this Money Matters.
People in their 20’s and 30’s can set themselves up well for retirement in a few way. The first is to start saving now. 70% of retirees wish they could tell their younger selves to start saving and investing earlier. If you want to retire someday, you have to start by finding a good job with steady pay to fuel your savings, preferably one that offers retirement benefits. Try to put aside 5-10% of your income into your employer-sponsored 401(k) or another retirement account. If your company offers a match, make sure you contribute at least enough to earn those free dollars. The earlier you start saving, the more compound interest you can earn over time to boost your retirement savings
When it comes to spending, it’s important to adopt the mindset of less is more. It’s tempting to spend more instead of saving, but living off of less of your income will provide you more benefit in the future. Start the habit of living within your means now and make it a practice even as your income scales up in future years. When you learn to live off less, you’ll have more mental free space, less stress and more margin to afford what you really want to buy.
For people in their 40’s and 50’s, you should invest aggressively and maximize your contributions. During this age range, you’re typically at the peak of your career and experiencing your highest earning years. As your income increases, scale up what you’re investing in the market. A good goal is to increase your retirement contributions by 1% each year. At this stage in life, you can afford to be aggressive with your investments because you still have time to recover from loss. If you’re struggling to figure out your next investment move, a financial professional can assess your portfolio and provide strategies to help diversify your retirement savings.
Make sure to max out your contributions at this point in your retirement-prep journey. For 2022, the individual limit for 401(k) contributions is $20,500, and those putting money towards an IRA can contribute up to $6,000. Once you turn 50, you’re eligible to take advantage of catch-up contributions by putting additional funds to your 401(k) and IRA accounts. If you got behind saving when you were younger, this is a great way to make up for any lost time.
People in or near retirement should keep a few things in mind in order to have a successful retirement. The first is to determine your mindset. Once you’re near or in retirement, you’ll have to decide how to spend your hard earned savings. It’s important to start by asking yourself, “What was the money for?” You said no to a lot of things and made sacrifices to accumulate your retirement savings. What was the lifestyle you were saving for? What were the experiences you were hoping to have? Let your vision for retirement guide you in how you spend your money. Keeping your mindset focused on the goals you’ve had in mind for years will help you truly enjoy spending the money you’ve worked so hard to save.
To make sure you have peace of mind as you use your savings, make sure to create a spending plan. Take inventory of your fixed expenses like any outstanding debts, bills and the cost of necessities like food and gas. Make sure these fixed expenses are covered by your retirement income. Having a budget or a spending plan shouldn’t be restrictive. Once you know your needs are met, you have mental freedom to explore your hopes, dreams and aspirations in retirement.