It's never too early to start planning for retirement. The earlier you start saving, the more time your money has to grow. But how much should you save? And what's the best way to go about it?
There's no one-size-fits-all answer to these questions, but there are some general guidelines you can follow. A good rule of thumb is to try to have enough saved so that you can replace 70-80% of your pre-retirement income. So if you're currently earning $50,000 per year, you'll want to have around $35,000-$40,000 per year in retirement income.
Of course, this is just a general guideline. Your actual needs will depend on things like your lifestyle, health, and whether you have other sources of income in retirement (such as a pension).
If you're not sure where to start, there are plenty of retirement calculators that can help you figure out how much you need to save. Once you have a goal in mind, you can start working towards it.
Where will your retirement money come from? If you are like most people, qualified-retirement plans, Social Security, and personal savings and investments are expected to play a role. Once you have estimated the amount of money you may need for retirement, a sound approach involves taking a close look at your potential retirement-income sources.
There are a few different ways to save for retirement. The most common is through an employer-sponsored retirement plan such as a 401(k) or 403(b). If your employer offers one of these plans, it's generally a good idea to participate. That's because they often come with benefits like matching contributions from your employer (which is free money!).
Another option is to open an Individual Retirement Account (IRA). IRAs come in two different flavors: traditional and Roth. With a traditional IRA, you get a tax deduction for your contributions now, but you'll pay taxes on the money when you withdraw it in retirement. With a Roth IRA, you don't get a tax deduction now, but your withdrawals are tax-free in retirement.
Which one is better for you depends on your situation. If you think you'll be in a lower tax bracket in retirement than you are now, a traditional IRA may be the better choice. If you think your tax bracket will be about the same or higher in retirement, a Roth IRA may be better.
You can contribute to both a 401(k) and an IRA, but there are limits on how much you can contribute each year. For 2022, the contribution limit for 401(k)s is $20,500(or $27,000 if you're 50 or older). The contribution limit for IRAs is $6,000 (or $7,000 if you're 50 or older) but may be limited depending on your earned income amounts.
If you're self-employed, there are a few other retirement plan options available to you. These include SEP IRAs and Solo 401(k)s.
Once you've started saving for retirement, it's important to keep track of your progress. This way you can adjust your savings rate if necessary to make sure you're on track to reach your goals.
There are a few different ways to do this. One is to use a retirement calculator like the ones mentioned earlier.
You can also simply track your progress by hand. This involves estimating how much income you'll need in retirement and then tracking how much you have saved each year. This method isn't as accurate as of the others, but it can still give you a good idea of whether you're on track.
No matter what method you use, the important thing is to keep an eye on your progress and make changes if necessary. By doing this, you can ensure that you'll have enough saved to enjoy a comfortable retirement.
A retirement advisor can help you plan for retirement and make sure you are on track to reach your goals. They can also offer guidance on things like how much to save and where to invest your money. If you're not sure whether you need a retirement advisor, there are a few things to consider. First, think about how complex your financial situation is. If you have a lot of assets or income from multiple sources, it may be worth getting some professional help.
Another thing to consider is how comfortable you feel making decisions about your retirement planning. If you're not confident in your ability to choose the right investments or calculate how much you need to save, an advisor can be beneficial.
Finally, think about how much time and effort you're willing to put into your retirement planning. If you'd rather not deal with the details, an advisor can take care of everything for you.
If you're interested in learning more about retirement planning, or if you want to talk to a retirement advisor, we can help. Contact us and get started on your retirement planning!