Saving now to spend that money in 30 years or later takes wisdom and discipline. Unfortunately, wisdom and discipline take time to develop — and most people can’t afford to wait.
The sooner you start saving for retirement, the easier the process is. Use these 10 tips to get your retirement planning on track in 2016.
1. Save money
If you’re not saving anything, start saving now. If spare change is all you can manage, great. Try to make it a dollar next week. Simply develop the habit of saving with every paycheck, no matter how small the amount.
Beginning to save as early as possible is the key to success. Ideally, time and compound interest will do all the heavy lifting. Save a small portion of your income with every paycheck over a 30- or 40-year career.
Waiting until later in life to begin saving requires much heftier saving over a shorter period of time and may even require working a few more years.
Looking for a place to stash your retirement money? How about a certificate of deposit? Find the best CD rates at Bankrate.com.
In general, experts recommend saving 10% to 20% of income, depending on your age and the number of years until retirement. Don’t worry if you can’t jump in at 10%. Save what you can and work up to it over time.
2. Bump up savings with each raise
When you start to save, no amount is too little. As time goes by and income increases, bump up your savings incrementally.
If you have an employer-sponsored plan such as a 401(k) and your employer offers a match, contribute enough to score the full match so you don’t miss out on “free” money from your employer.
Technically, the match is probably factored into your overall salary and benefits package, so if you don’t contribute, you’re forgoing part of your compensation.
3. Get debt under control
When you’re in a jam or making a big purchase such as a house or car, debt comes in handy. Over time, though, it becomes a drain on your finances. Pay off debt as quickly as possible to start getting ahead.
4. Use a tax-advantaged account
The government offers sweet incentives to get people to save using accounts such as IRAs and 401(k)s. IRAs and 401(k)s allow savers to put away money before taxes are taken out. That decreases taxable income today. In retirement, withdrawals are taxed as ordinary income.
The Roth version of the IRA and 401(k) requires that taxes be paid on contributions before they go into the account. But in retirement, withdrawals are tax-free.
The 401(k) is usually a great option if it’s offered by an employer. The contribution limit is $18,000 in 2016. People 50 and older can contribute an additional $6,000 in catch-up contributions.