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The Basics of Saving for Retirement

Kate Furlong



Whether you’re 30 or 50, retirement should be at the forefront of your thoughts when it comes to getting your finances in order. The days of steady pensions are largely over and Social Security will only fund a portion of most people’s golden years, so the burden of funding retirement is shifting largely to individuals. Here are some basic questions about saving for retirement and answers to get you on track.

How much should I save? When it comes to determining how much to save for retirement, chances are, you’ll save different amounts over the course of your life. For some people, it’s easier to save when they are younger, where they don’t have kids or a mortgage. However, for others, grad school and student loans make saving in their 20s difficult and they instead see a large income increase in their 30s, making that a better time to sock away money.

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Aim to put away at least 10 to 15 percent of your income for a basic retirement, and if you plan on living a more lavish lifestyle in your later years, you should be aiming for closer to 20 percent or more. The key is to start as early as possible, even if you can only save a little, because the more you save when you are younger, the less you’ll have to save later due to compounding interest.

Where should I save? There are numerous ways to save for retirement and, again, different people will have different strategies. However, if you have access to employer-sponsored retirement plans like a 401k or a 403b, those are a good place to start as your employer might match part of your contributions. If you don’t have access to these plans or the investment options are limited, you should open an IRA (Individual Retirement Account) or Roth IRA.

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These vehicles all have tax benefits and penalties for accessing your money before retirement age so, as a general rule, they should be used for retirement savings before regular taxable investment accounts (although, once you max them out, taxable investment accounts are a fine option). Still, others might invest in real estate or annuities as part of their retirement plan.

What else should I be doing to prepare? It’s great if you think you’re on track to have enough saved for a comfortable retirement but there are other issues to consider as well. For example, how will you transition to drawing down those savings so that they can provide you with income? It helps to have thought ahead about how you might do this and what your golden years might look like. For example, if you have an interest in real estate, you might look at investing in rental properties that could provide you with a steady income stream well ahead of your retirement date.

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Or, perhaps you think you will want to work part-time for a few years and be able to take advantage of delaying taking Social Security and giving up employer-sponsored health insurance. Or you may have a large college bill looming and you’re unsure how much of it you should foot the bill for. What will these things mean for your retirement savings goals? As your non-working days draw nearer, you’ll be happy you spent time thinking about these different situations and the impact they’ll have on your long-term plans.

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