Retirement is one endeavor that falls into the “someday” category. When living your day-to-day life as a person in their 20s, 30s, and even your 40s and those everyday expenses pop up, it’s more challenging to save for something seemingly so far away.
But as we all know — life comes at you fast. A 2020 survey by Charles Schwab of currently employed 401(k) plan participants found that saving enough for retirement continues to be a leading source of significant financial stress for all generations.
While studies show that 71 percent of Americans are adequately prepared for retirement, much of that includes receiving Social Security benefits under the current law. With Social Security payouts only scheduled to be paid at the total benefit amount through 2035, Millennials and Gen Z have to approach retirement from a different perspective — one that is diverse and doesn’t rely on Social Security benefits, if you can help it. The good news is that starting early allows you to reach your retirement goals more quickly.
In today’s economy, we can’t overlook that some people are not making a fair living wage, making it difficult to save. But for those who can save, it’s important to understand that it’s never too late to start saving for retirement. Your future self will thank you!
So what are the steps to take when you’re ready to jumpstart your retirement journey? Glad you asked!
1. GET IN THE “RETIREMENT READY” MINDSET.
The first step is getting in the right mindset and prioritizing your new savings goal. We encourage you to “Start Small, Think Big” and take advantage of retirement solutions available to you, like your employer's 401(k) or 403(b) plan or IRA options you can open on your own.
If you’re starting your retirement savings journey early, you have time on your side! However, if you’re closer to retirement age, prepare to be a bit more aggressive to achieve your retirement goal. Research how to make catch-up contributions to your retirement savings, ultimately jump-starting a stalled plan.
The good news is this: it’s never too late! It is important to remember that saving anything is better than saving nothing. Even increasing your retirement savings by one percent can make a massive difference in the long run.
2. DEFINE WHAT RETIREMENT WILL LOOK LIKE FOR YOU.
Your retirement years will be as individual as you are! Have you visualized how you’d like your retirement to look and feel? Think about where you want to settle down. Will you stay put, or do you intend to travel far and wide? How much “annual income” will you need to achieve this envisioned lifestyle? Asking yourself these questions will help determine a rough estimate of how much to start saving now.
Someone who plans to travel and have an active lifestyle when they retire may need to save more than someone who has a home paid off with no grand plans of world travel.
You will also need to consider when you want to retire. This will help determine how much you should be saving annually. In the modern age, people pre-retire, half-retire, or never leave the workforce.
3. CALCULATE HOW MUCH YOU’LL NEED TO SAVE.
Once you have an idea of what type of retirement you want to have, estimate the annual retirement income needed. You want to ensure you are saving for the future you want. Most Americans need to put more money into their retirement fund every year to afford the life they want for themselves in the future.
What each person needs will vary widely based on several factors, including your current age, the age at which you plan to retire, if your partner or spouse has an income, your spending habits, and different sources of retirement income. There are also circumstances beyond your control, like how long you can expect to live based on family history.
4. DO YOUR HOMEWORK.
Consider what type of accounts to deposit your retirement savings into. Your employer may offer a retirement plan such as a 401(k), 403(b), or SEP-IRA and match your contributions to a certain percentage. The most important consideration here is to take advantage of employer benefits, such as matching your contributions to a specific rate. Find out if your employer offers a match and contribute at least enough to maximize that benefit.
Individual Retirement Accounts (IRAs) are also an option, and you can open one anytime at any of our Better Banks locations. There are several different IRAs, including the most common: Roth and Traditional. Roth IRAs can be withdrawn at any time without penalty and are tax-free. Traditional IRAs may be tax-deductible, and your earnings grow tax-deferred until you start making withdrawals. You’ll need to determine which is best for you — or maybe a combination.
5. PRIORITIZE MAKING YOUR CONTRIBUTIONS AUTOMATICALLY.
Now that you can visualize the type of retirement you want, have determined approximately how much you’re saving for, and have a plan, the best thing you can do is set it and forget it! Set up automatic payments and contributions through your employer or a financial institution to stay on track.
The point of retirement savings is to keep it invested for the long term. This means avoiding dipping into your retirement fund for emergencies. Instead, create an emergency savings fund that you contribute to consistently.
Research by the Employee Benefit Research Institute shows that it typically takes 13 years or more of contributions to an account before you begin to reach a level of savings that is enough to fund several years of retirement as a supplement to Social Security. So don’t become discouraged if you do not have enough savings in your retirement fund yet.
Whatever path you choose to take toward retirement, the most significant step to take is being consistent. Retirement savings is a long-term commitment, but today’s work will pay off in the long run. Better Banks can help you reach your goals, no matter what they are. Your future self will thank you!