We’ve all seen those commercials where someone asks a group of people, “So how much money will you need in retirement?” The look of shock, nervousness, and concern fill these peoples faces. It’s a hard question to answer. Who knows how long they’re gonna live for? What if you live well past 100? Are you supposed to have enough money saved to last for over three decades? Saving for retirement can be a scary and overwhelming prospect, but as with anything scary and overwhelming, a little planning can go a long way.
A general guideline is that 10% to 15% of your annual earnings should be set aside for retirement starting in your 20s. By set aside I don’t mean hoarding cash under your mattress, I mean strategically placing money in high-yield savings accounts, CDs, and low-risk stocks and bonds, as well as enrolling in government sponsored programs.
Savings Accounts and CDs
Most of us have probably had savings accounts since we were little kids, but as we get older, we need to be more strategic and selective with exactly what kind of savings accounts we use. Do a little research and find savings accounts that offer the highest APY (annual percentage yield). The more your money grows on its own, the better.
CDs are similar to savings accounts, but they usually have even higher APYs and they lock your money up for a certain period of time, perhaps two to three years. When you’re saving for retirement, you don’t want to be taking any money out of savings anyways, so this should not be a drawback. In fact, if you only remember one tip from this article, remember this: Rule #1 when saving for retirement is do not, in any circumstances, take out, remove, or borrow money from your retirement funds. Just don’t touch it. Have everything set up so that money goes straight into your accounts and just let it grow.
Government Pension Programs
Most countries, and all Western countries, have some form of government funded pension. New Zealand has Superannuation, the U.S. has Social Security, etc. Most of the time you pay into these through your employer. Make sure to ask them if they offer any other form of retirement savings plans. Some employers have a matching program where if you put in, for example, $100 every month into a retirement plan, they will also contribute $100 every month. The more help you have, the better.
Low-Risk Stocks and Bonds
A very important aspect of saving for retirement is investing. Investing will help you diversify. “Diversifying your portfolio” is a phrase you’ll hear a lot and essentially what it means is, spread your money out between different places so that if something happens to some of it, you aren’t left with nothing. Basically, don’t put all your eggs in one basket. When investing for retirement savings, you want to find low-risk stocks and bonds. Retirement is not a situation that you want to gamble with. You want steady, constant, and incremental growth in your money. Just like the tortoise, slow and steady wins the race.
Talk to a financial advisor to help make sure you’re set up for retirement. It may seem like a long way off, but it’s never too early to start planning. Retirement doesn’t have to be scary. Think of all the travelling you can do in retirement! Save now for unlimited freedom in the future.