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.
Instead, there is a financial template that we should follow to ensure success. The basics are as follows:
- 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
{ 12 comments… read them below or add one }
Good article. I think 15% is a good number to start with (10% at a bare minimum). I think you should start saving the moment you start generating capital and your parents should start saving for you before that.
What you’re really saving for is a point in life in which you may be capable of working but have lower energy, few job opportunities, little or no chance of reeducation and a reduce income potential.
And I agree with holding off the actual act of investing until you know what you’re doing. Just keep putting the money aside until then.
I think your plan of 15% starting with a company match 401k, Roth IRA, and moving on is a good basic plan to begin with. Many people don’t have the option of a 401k, and with the Roth limitations you have to get a bit more creative as to where you put your money.
I have never heard of someone recommending to wait on saving for retirement until you have all of your “financial ducks” in a row. But it makes way more sense to wait until you are financially responsible and have a healthy plan of attack for that retirement plan than randomly throwing your money into an account you are not educated on. The point of this article is so simple and logical that I had to read it again and wonder why more people don’t see the necessity to plan, educate and then save like crazy. Well done!
since this is ‘Christian PF’ and the article is prefaced by a scripture, I was curious to not see any reference to the Biblical principle of tithing. Is tithing implicit in any sound Christian financial plan? It was one of the first Christian disciplines I learned more than 30 years ago as a new Christian and I have found that it works; for me and for anyone who faithfully commits to it. On the other hand, I have counselled many so-called believers who get awkward and tongue-tied when the conversation turns to tithing. They continue to ignore God’s prompting and continue missing out on His financial blessings. So sad.
I agree with the points, there may be times when it is not right to save for retirement. However, I think we all agree sooner than later is better. You do need to put a plan in place and try and stick to it.
There may be times when you cannot always follow the plan, for example if you lose your job. You want to get back on track as soon as you can.
Don’t you think that if you wait to pay all your other stuff that you will always find a “good reason” to not start thinking about your retirement?
I would rather invest for my retirement than building an emergency fund. My line of credit can just do fine for the emergency fund while it gives me additional cash flow per month so I can start investing right now…
If you don’t consider retirement investing as one of your first creditor, I think you will live your life without investing a penny in your retirement account. thoughts?
It is good advice to start your retirement savings when the time is right for you. You do not want to be in a situation where you have put away money into a retirement savings plan and then need that money for day to day living. There is a lot of pressure to start your savings as soon as possible, but at the same time you need to make sure that all your basic needs are met first.
15 % is huge number for me. My question, if I have build my emergency fund and now starting to contribute for retirement account (15 %) and 10 % for God, should I keep saving money ? And how much it would be?
there is no doubt at first it is very difficult to save money. the good news is at some point god will bless you with a great opportunity to earn money while sharing his love. it is at this time that you will be given a great opportunity to save money for you and your family. be patient and keep the faith your time will come. it does for all of us.
The when part is easy. Soon as you get your first job.
I believe that the future starts now that is why it is always the right time to prepare for the future. Retirement is the phase of our life where we wanted to rest from all the financial worries and I think this is a process we surely wanted to guaranty. I agree with those financial templates as a good start of retirement preparation. Having to clean up our debts established a way of moving to the next level for securing our finances.
The idea is really right, people must start saving for retirement no matter what age of you right now, the earlier the better!
Personally, I am just 19 years old by now I am saving for my future but not for my retirement yet because I am just starting in working.