Saving money is the first step towards retirement. So when exactly is the best time to start saving?
When To Save For Retirement
The experts suggest that everyone begin saving for retirement as soon as they can. While this maybe seems easier said than done, there are multiple options available for young people to start saving money. A great way to start saving is by putting away 10% of your monthly income each month. If you put 10% of your $5,000 monthly income, this will equal $500 of savings. Putting away $500 per month will lead to $6,000 in yearly savings. Doing this in your 20s can certainly help cover for any stock market dips.
A recent survey conducted by Charles Schwab revealed that Americans believe they need to save $1.7 million by the age of 65. If this is a goal of yours, you will need to save at least $500 per month, starting at age 25. In some cases, saving this amount each month can be nearly impossible. Many 25-year-olds are struggling in the job market and/or busy paying off students and raising a family. If you must kick retirement savings down the road, the amount you’ll have to save each month will undoubtedly increase.
How To Save Money
If you simply can’t afford to begin saving money in your 20s, the experts say the next best time to begin saving money is right now. Put away any dollar amount that you can afford at this point. If offered, jump on your employer’s 401(k) plan right away. Opening a traditional IRA can provide more investment options than the typical 401(k) plan. An IRA will impose a limit of a $6,000 contribution for anyone under age 50.
Thankfully, there are several other ways to begin saving money. If you can’t invest in an IRA or 401(k) plan, it doesn’t mean that saving money is out the window, fortunately. Start by putting away any extra or unexpected cash flow. This could be anything, from bonuses to birthday checks. Try to avoid any luxury purchases, if possible. Put any and all spare change away in the bank. Picking up a part time job could also prove beneficial in the long run.
Age When Americans Start Saving For Retirement
Here’s a look at the age groups when Americans typically begin saving towards retirement:
- Ages 20-29: 39%
- Ages 30-39: 25%
- Ages 40-49: 15%
- Ages 50-59: 6%
All data is according to Morning Consult.
Different Ways To Save For Retirement
If you are not offered a 401(k) plan through an employer, there are still many ways to save money now. Try these three savings options.
Contributing to a CD (certificate of deposit) tends to be one of the safest investment options. It is so safe because the federal government insures CDs to never lose value. Another plus is that money can be withdrawn from a CD at any time desired. Being able to withdraw at any point is crucial for anyone encountering unexpected hospital bills, car payments or other bills.
Even if you have already contributed to a CD, opened an IRA and Solo 401k, you can still open a health savings account. The two biggest benefits of an HSA are the tax-free withdrawals and large potential for growth. The only downside is this money cannot be pulled without penalties until after age 65.
Also known as a self-employed 401k, a solo 401k is ideal for those not expecting to make a large yearly income. A solo 401k offers individuals the opportunity to contribute twice, once as an employee and once as an employer. Individuals can contribute their entire yearly income as long as that figure does not exceed $19,500. Employers may only contribute up to 25% of yearly earnings. Solo 401k contributors’ spouses are also eligible for this plan.
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