As we age, the question inevitably comes up of how to save for retirement. The urge to save for the future comes sooner or later, but it is wise to plan sooner.
In the house of the wise are stores of choice food and oil, but a foolish man devours all he has. – Proverbs 21:20 NIV
When To Begin Your Retirement Savings
There are many financial gurus who tell you to start saving for retirement NOW! No matter what, you should begin right away! This can be unwise advice for many people, as some are not financially stable in the present time in order to adequately contribute to a retirement fund and might forego necessities for the sake of the future.
- Meet all short-term financial needs. For example: paying for food, lights, shelter, and reasonable clothing.
- Meet all medium-term financial goals. For example: paying of debt, building your emergency fund, beginning to regularly save for retirement, kid’s college educations, etc.
- Meet all long-term financial wants. For example: building wealth to live the way you desire, where you want, doing those things that give you fulfillment.
Any plan built around this template has a great head start. Of course, you want to make sure you start saving for retirement as early as possible, but you don’t want to get ahead of yourself.
Once you have met all your more immediate financial obligations, it’s time to get that retirement account rolling!
How To Begin Your Retirement Savings
Following Dave Ramsey’s methodology, it is important to invest 15% of your household income into retirement accounts. You should take that 15% and invest in the following way as described in my review of Dave Ramsey’s Baby Steps:
- 401(k): If your company has a 401(k) that you can contribute to and will match up to a certain percentage, take the match! You can’t beat free money! Let’s say your company matches 3%. Invest 3 percentages of your 15% and move on to the next prioritized account below.
- Roth IRA: The Roth IRA will allow you to grow your money tax-free since you will have already paid taxes up front. This is a huge advantage. Invest the remainder of your money into Roth IRA’s up to the maximum contribution limit (for example: $5,000 per year). If you still haven’t reached your 15% contribution amount, proceed to the next prioritized account below.
- 401(k)s, 403(b)s, 457s, or SEPPs (for the self-employed): Take the remaining amount you have and invest back into these types of accounts.
One of the most important points about retirement investing is to not invest until you UNDERSTAND what you are investing into. Make sure you fully comprehend the ins and outs of your portfolio. To begin, you’ll need an advisor that has a heart for teaching and training. Don’t hire someone who simply wants to sell you on the latest and greatest. Find someone who will take the time to teach you how to invest wisely.
The End Result
If you start your retirement planning when it is most opportune for you, and you contribute the recommended amount, you will be wealthy in the end. Remember not to get too far ahead of yourself. Take it slow and learn before you jump into an investment. I’m confident that if you follow these principles, you’ll have enough money to last you throughout your latter years.
Retirement is within reach. By asking yourself the difficult questions about where you want to be in life, you can effectively mold your future. I’d love to meet you in the comments to discuss your specific retirement planning goals. What do you want to do in the future? How do you want to live? Let’s chat it up!
Photo by David Boyle