Whether you are taking on your first job or looking for one, now is the time for to start taking actions that can foster good behaviors in the future. Retirement may seem far off, but the reality is that the earlier you start taking simple steps to saving, the better prepared you'll be to reach your retirement goals.
One of the easiest ways today's workers have to save for their future is through an employer-sponsored retirement plan, such as a 401(k) or 403(b). Your age is your biggest advantage right now when it comes to saving for the future. Saving early gives you the opportunity to make your money work for you with compounding interest.
It's also important to consider that when you participate in your employer-sponsored retirement plan, you reduce your taxable income today while helping to build retirement savings for tomorrow.
Your approach to saving is personal, and each person's financial situation is unique. You may be weighing the costs of budgeting for student loan payments, rent and the basic costs of living, but starting to save now can help you take charge of your future.
Here are some important things to think about as you begin to conquer your career and find yourself saving for retirement for the first time:
Take a holistic view of savings. For many new to the workforce, it can be tempting to spend your paycheck and set very little aside into savings. Create a budget to help manage spending and include a bucket for retirement savings. The more you earn, the more you should save. Consider increasing your contribution if you receive extra money from a raise or bonus.
Start saving as soon as you can. When it's available to you, enroll in your employer-sponsored retirement savings plan. Enrollment is often the first step toward considering your own retirement savings goals and setting yourself up for success. If your company does not offer an employer-sponsored retirement plan, consider saving in an individual retirement account. You can visit your local bank to find out which IRA options make the most sense for you.
Knowledge is power. While interviewing for a job or right after you start a new one, be sure to ask what type of retirement benefits the employer offers. Many employers work with retirement providers that offer financial education in a variety of ways, including one-on-one meetings with a financial professional, online, over the phone or with education materials.
It's also important to understand your investment options. Many plans offer automatic features, such as automatic enrollment, deferral and escalation to streamline the savings process and enhance retirement outcomes for savers. You can also consider investment options that offer in-plan guaranteed benefits to help protect assets in down markets, provide access to cash in case of an emergency and have growth potential.
Target-date funds are another option and are designed to manage risk over time. The flexibility of these funds can cover a broad range of risk tolerance. As an investor ages, the target-date fund's asset allocation mix shifts from a focus on growth to a focus on income. As with any investment decision, it's important to talk to a financial professional to see what options could be right for you and understand any fees that may be associated with the offerings.
Save at least up to the company match. Your employer may offer an incentive to help you save for retirement by matching a portion or the full amount of your contribution. If you are not taking advantage of a company match, you are leaving money on the table. You should save at least to the company match and increase your contributions annually as you earn more throughout your career.
Schedule a retirement plan check-up. Saving in a retirement plan for the first time may feel intimidating but you are not alone. Schedule an initial meeting and then commit to annual check-ups with a financial professional to talk about your savings progress.
Thirty-five percent of plan participants with access to a Retirement Consultant are confident they will have enough money in retirement, as opposed to the 19 percent plan participants without access to a Retirement Consultant.
Meeting with a financial professional can help you stay on track and identify any changes that should be made to achieve your savings goals. A good way to remember is to schedule retirement plan check-ups around your birthday or a company anniversary.
Resist the temptation to borrow against your plan. Sometimes you get hit with unexpected expenses. You may need a new car, have to pay off debt or need access to cash. When this happens, you may be tempted to borrow against your retirement savings. This is especially true during a down market.
Try to stay focused on your long-term goals and resist the temptation to borrow against your plan. In addition to the possible taxes and penalties related to not paying the loan back, you may miss out on potential market gains.
Once you start saving, you'll feel good about the progress you're making. Steady savings can help you feel confident that you've taken the right steps toward the lifestyle you want to live throughout all of your life stages, including your retirement years. Saving early can be one of the most important things you do for yourself to achieve retirement readiness.
Lincoln Financial Group is the marketing name of Lincoln National Corporation and its affiliates. Affiliates are separately responsible for their own financial and contractual obligations.
Chuck Cornelio is President of Retirement Plan Services for Lincoln Financial Group and is responsible for the firm's employer-sponsored retirement plans business. Cornelio also serves as the company's Chief Administrative Officer and oversees the enterprise-wide Shared Services and Information Technology functions. Cornelio made 401k Wire's list of "Most Influential People" in the industry in 2013. He was also a founding member of the SPARK Institute and a former Governing Board Member.
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