When you think about your dream retirement, you probably don’t imagine having to work during that time. A lot of Americans, though, have to deal with this kind of truth. In 2023, the Pew Research Center did a poll that showed that 19% of Americans aged 65 and up were still working.
That’s almost one in five. This happens for a number of reasons, including not having enough saved or not realizing how much they would need to spend in retirement. Even though these problems are real, there are things you can do to make it less likely that you’ll have to work in your golden years.
Starting to save for retirement as soon as possible is one of the most important things you can do. You can’t say enough good things about compound interest.
It’s a big reason why financial experts always say it’s important to start saving money early. Your money will have more time to grow if you start early. The money you put away now, even if it’s only a small amount, is worth more than the money you might put away later on.
Take the example of starting to save for retirement when you are 25 years old. If you put away $1,800 a year, which is about $150 a month, in a 401(k) with a 7% yearly return, you could have just over $359,000 by the time you turn 65, assuming you don’t increase your contributions.
If you wait to start saving until you are 35 years old and put away $300 a month, which is twice as much as in the first case, your savings would grow to about $340,000 by the time you are 65, with the same yearly return.
How to begin saving money for retirement
Please talk to your boss about setting up 401(k) contributions if you haven’t already. This will make saving easier. Once set up, these contributions will be taken out of your paychecks regularly, so you can save money over time.
Along with starting early, another great way to boost your retirement savings is to make the most of any job match that is available. An job match is like getting money for free, and putting away enough each month to get this match can really help your retirement fund.
Say your employer matches up to 3% of your yearly salary in retirement contributions. If you make $50,000 a year, that’s an extra $1,500 a year in retirement contributions. If the return is 7% per year for 40 years, that one year of matching payments could grow to just over $22,000.
You’ll need to call your retirement plan provider to change the amount you contribute. It’s also a good idea to look at how much you contribute every year, especially if you stay with the same job for a long time. You can save even more for retirement by regularly increasing the amount you put in as your pay grows.
Open and invest in a Roth IRA
Putting money into a Roth IRA (Individual Retirement Account) is another good way to get ready for retirement. It’s important to think about how taxes will affect your retirement savings before you start putting money into a retirement fund.
When you leave, the more taxes you owe, the less money you’ll have. This could mean you need to go back to work to make ends meet. With a Roth IRA, you can lessen this risk.
Putting money into a Roth IRA doesn’t lower your taxable income right now like a 401(k) or standard IRA does. The good thing is that payments made during retirement are not taxed. If you are in a higher tax rate, this can help you the most because it lowers your tax bill when you need the money the most.
It’s important to remember that the limits on how much you can put into a Roth or regular IRA are the same. The most you can put in each year will be $7,000 after 2024, or $8,000 if you are 50 or older. You have to pick a service and fill out an application to open a Roth IRA.
Once you’re set up, you can set up regular payments or choose to make bigger deposits less often, like every three or twelve months. After putting money into the account, it’s important to spend it so that it grows over time.
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