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12 months of saving: When should I start saving for retirement

If you are asking the question, the answer is to start saving for retirement now. Ideally, you start saving with your first job. Between grappling with mounds of student loan debt, trying to balance bills and maybe saving for your first home, explaining the importance of saving for something 40 years from now can be overwhelming.

The sooner you start saving, the better your retirement will be.

Say you start at age 25, and put aside $3,000 a year in a tax-deferred retirement account for 10 years. Then you stop saving. Completely. By the time you reach 65, your $30,000 investment will have grown to more than $338,000 (assuming a 7% annual return), even though you didn’t contribute a dime beyond age 35.

Okay, that’s best case.

You’re a little older, and a little wiser, and retirement is actually something you are able to conquer. If you are 35, and plan on saving $3,000 a year (every year) for 30 years, by the time you reach 65, you will have set aside $90,000 of your own money. Unfortunately, it will grow to only about $303,000, assuming the same 7% annual return. That’s a huge difference.

How much should I put into retirement?

Saving money for retirement is an investment in you. Life is in constant motion and if you wait to start saving for retirement, one year becomes five which morphs into 10 before you know it.

Numerica believes in the philosophy of, “Spend, Save, Share.” While everyone’s financial situation is different, this is an outline to where your money should be going. It shakes out to be spending about 70 percent of your income on needs, working towards saving 25 percent for both long-term and emergency savings and then giving 5 percent back to help support the community.

Figure out your budget. This can feel like an overwhelming task. So plug at it a little each day. Create spending categories for your transactions in online banking. After all, how can you set a budget if you don’t know where your money is going?

How long will it take for my money to double?

If you are just putting money aside in a savings account, it’s going to take a while. This type of saving is perfect for short-term savings goals and emergencies. Accounts like Bonus Saver can help you reach those goals even quicker. However, for long term savings like retirement, you are going to want to be earning compound interest.

There is a scientific formula A = P (1 + r/n) ^ nt but that isn’t very interesting. Use the rule of 72. Take the number 72 and divide it by the interest you could be earning. That is the number of years.

Imagine if you deposited $1,000 when you were 18. If you earned 2 percent on the account, it would take you 36 years to double it to $2,000. (Since 72 divided by 2 is 36.)

Retirement for the commitment-phobic

If your employer offers a retirement match, try to maximize on that. For those who have a slight sense of panic at the thought of having your money tied up in a 401K, or are concerned about not having access to that money if you need it, look at the long-term goal. Realize that if you need access to those funds, you can, but you may potentially have a penalty.

Still can’t commit to locking your money away? A Money Market lets you save with competitive rates on higher balances but allows for up to six transactions per month. Consider a Certificate of Deposit (CD). A CD gives you steady rates without the market swing and has higher rates than traditional saving accounts. IRAs let you deposit up to $5,500 per year if you’re under age 49 or $6,500 over age 50.

No mater where you are in your retirement journey, your favorite Numerica branch can help you talk through your options. It’s never too early to start saving – or too late.

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January 16, 2019

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