Saving for Retirement

Planning for retirement, savings plans, Heafner Financial can help.

Saving for retirement is one of the most important things you can do as a working adult. By planning now, you’re setting yourself up for a much more comfortable and financially secure life after work. However, due to life’s many financial hurdles, many people don’t consider saving for retirement realistic, while others simply ignore it because it seems so far off.

These factors and more have contributed to many Americans not being prepared for retirement. A 2016 study found that 34 percent of Americans have zero retirement savings, while 35 percent have less than $1,000 put away. If you’re without a plan, consider these basic guidelines for saving for retirement so you can start building your nest egg now.

Estimate How Much You Will Need to Retire

The amount you will need to retire will differ from your neighbors and parents. So, it’s a good idea to calculate an estimated amount based on your current finances.

A common recommendation is to have 70 to 90 percent of your current annual income replaced by your retirement fund and Social Security. So, if you earn $50,000 per year on average, your goal should be to have retirement savings cover $35,000 to $45,000 per year.

It’s helpful to use an online retirement calculator to see how much you should be saving each month to reach that goal. Saving 15 percent of your income each year is a common recommendation, but you may find that your percentage differs based on your needs.

Start as Early as You Can

This may seem obvious, but the difference between opening a retirement account at 25 versus 35 is substantial. Factors like compound interest, salary changes and the amount of years spent saving will dramatically change the amount you end up with.

For example, if a 25-year-old and a 35-year-old begin investing five percent of their $40,000 income each year into a 401(k) with a seven percent annual rate of return, the 25-year-old will have accumulated $478,583 while the 35-year-old will only have $228,783 by age 67. That’s a significant difference!

Savings Options

Many people realize they should be saving for retirement, but not many know what their options are outside of a regular savings account. These are some of the most common retirement accounts:Saving for retirement, 401(k), IRA's, investments, savings. Heafner Financial can help you find the right way to save.

401(k) – If you work full time at a for-profit company, you may have 401(k) savings plan available to you. You can sign up at any time and pledge a contribution percentage of each paycheck to be deposited in your 401(k). Some companies will also match a percentage of your pledge. It’s a good idea to take advantage of this when possible, otherwise you’re losing out on free money!

IRA – If your employer doesn’t offer a 401(k) or you’re self-employed, you can set up an IRA with a bank or brokerage. An IRA, or individual retirement account, can be used in conjunction with a 401(k). People often use both when they’ve maxed out their employer match contribution on their 401(k).

One of the primary benefits of a traditional IRA is that contributions are tax-deductible for the year they’re made. One downside is, withdrawals made during retirement are taxed. You can deposit up to $5,500 per month into an IRA.

Roth IRA – Younger people or those who don’t pay as much income taxes may want to consider a Roth IRA rather than traditional. With the Roth, you won’t get a tax deduction for contributing. However, withdrawals are not taxed during retirement because the money being deposited has already been taxed.

Start Budgeting

The most difficult part of saving for retirement is often coming up with extra money to put toward savings. That’s because reading that you need to set aside an extra $300 per month is a lot different than actually doing it, especially if you’re on a tight budget.

Making a budget based on your income and sticking to it is the best way to be able to consistently save the amount you need to reach your goals. If you don’t already have a budget in place, try implementing the 50-30-20 budget:

  • 50 percent of your income goes to living expenses and essentials, like rent and groceries
  • 30 percent of your income goes to extras, like travel or entertainment
  • 20 percent of your income is for savings and debts

This is just one example, but it’s a good place to begin if you’re just getting started.

Work With a Certified Financial Advisor

This is just the tip of the iceberg. There are many more options and ideas when it comes to saving for retirement. Often, the best thing you can do to set yourself up for the future is talk with a financial advisor who will help you establish a plan that works for you and your goals.

Heafner Financial Solutions specializes in all types of financial advisement, including retirement planning. If you have questions or would like more information, call (704) 552-1230 or contact us online today.