Saving for Retirement
Saving for retirement is a challenge for many people, and the savings rate in the United States has been declining since the early 1980s. The average worker now contributes only about 10 percent of their income to retirement accounts, which is a problem across the country. In this article, Jordan Sudberg discusses how to save for retirement.
1. Start saving early
The earlier you start saving, the more time you accumulate assets. For example, if you are 25 years old today, that means you can build up your nest egg until you are 65 without having to worry about Social Security. However, if you wait until 35, you will need to work an extra 20 years to get the same amount saved. That’s because, at age 35, you will be starting to collect Social Security benefits.
2. Make it automatic
Whether you are employed by someone else or self-employed, you should automatically contribute money from each paycheck into your 401(k) plan. This way, you won’t forget to do so. If you don’t set up automatic contributions, you may find yourself contributing less than what you would like.
3. Max out your company match
If your employer matches part of your contribution, make sure you take advantage of as much of that match as possible. For example, if your employer offers to match 50 cents on every dollar you contribute, then contribute enough such that when you retire, you will receive 100% of your account balance through your employer’s matching program.
4. Take full advantage of workplace retirement plans
If your company provides a pension plan, sign up for it. You might also want to consider nonqualified deferred compensation plans (also known as profit sharing). These plans often offer higher rates of return than pensions. Deferred compensation plans are beneficial if you know you will not be working for your current employer forever.
5. Invest wisely
Once you have built up your nest egg, you need to invest it wisely. Avoid overpaying fees and try to keep costs down. Use low-cost index funds and ETFs. Also, diversify your investments among different asset classes – stocks, bonds, cash, real estate, precious metals, etc. Finally, don’t put all of your eggs in one basket.
6. Consider annuities
An annuity is a contract between you and an insurance company. With an annuity, you agree to pay fixed amounts to an insurance company based on a certain period of time (the “annuitization period”). You typically give the insurance company a lump sum of money to purchase an annuity. Then, during the annuitization period, the payments you make are used to pay off the loan. You stop making payments once the annuitization period ends, but you still own the policy. Annuities can provide a source of monthly income for life once you reach a particular age (usually around 80). They can also help protect your principal.
7. Review your portfolio regularly
It is important to review your investment portfolio periodically. Make sure you understand how your investments perform relative to their benchmarks. Are you getting better returns than expected? Have some of your holdings declined in value unexpectedly? Do you feel comfortable managing your investments?
In conclusion, according to Jordan Sudberg building a solid financial foundation is critical to achieving your goals. So, start early and continue saving throughout your career. The sooner you begin, the more time you will have to keep. And the longer you work, the greater the potential benefit of compounding interest.