Retirement is one of those things that people definitely don’t think about until they get older. Is that a good thing? Not at all. The truth is that the time value of money principle is very strong on some things, and retirement is definitely one of them. You definitely want to make sure that you have things taken care of rather than just sliding into a lot of problems down the road.
Preparing for retirement can be complicated, but it doesn’t really have to be. The good news about starting while you’re young is that you can take a lot more risks than someone that’s trying to play catch up. Even though the laws do allow for higher contributions later in life in order to catch up on the past, it’s really not the same at all.
Did you know that young people, on the whole, underestimate their retirement needs by nearly half a million dollars.
If you’re a woman, then you need to actually save more than a man because women actually live longer statistically. So if you’re not saving right now, you could end up getting left behind twice over. You might end up being unable to take care of your bills which would be a real shame. Why not start thinking about retirement now?
Experts at this time estimate that you will need well over two thirds of your current income to maintain your lifestyle. Lifestyle design is going to be important here. If you’re in the “ramen and hot dogs” stage of life, you want to get out of it as soon as possible. But what happens at retirement? You could be revisiting that life in a bad way if the money runs out. Think that you will just be able to go back to the workforce? Unfortunately, age discrimination is alive and well. Many worry that you will not be able to keep up with younger employees, or that you will demand higher pay because of your experience. It’s really something that you want to avoid if you can help it.
Why not think about getting retirement started? The first question that you’re honestly going to have to ask is how much should you be saving right now. The truth is that you want to save at least ten percent, but that’s only a starting point. You will need to make sure that you are also putting down money towards a house. Becoming a homeowner is an important step in the process, because you will need have an asset that you can count on for the rest of your life.
If you want to really get aggressive, you can do 5% retirement and then have the other 5% for your home’s down payment. Don’t get sucked into the “no money down” nonsense. You have to make sure that you’re putting down a sizeable down payment for a home because this will be negotiating leverage when you get ready to actually sign on the dotted line. Having a down payment gives you power in the world or real estate, and it makes mortgage people feel more comfortable loaning you the rest of the money. If you start thinking ahead of everyone else, you will actually be able to own a home sooner than your friends — not that this is a competition, of course.
Make sure that you go back to at least 10% after you buy the home. On the subject of homes, it’s a given that you don’t want to get a home that you can’t afford no matter what happens. Just because you have a high income right now doesn’t mean that it will always be that way forever. The 2008 mortgage meltdown pushed a lot of people out of otherwise high end jobs, and that left people facing problems they never expected to face.
If you’re really stuck, you can always use a retirement calculator in order to stay on track. All this will require is you plugging in a few numbers — the calculator will take care of the rest for you.
It cannot be stressed enough — retirement money is not part of the general savings pool. You cannot rob it when you feel like you’re low on money. You cannot attack that account whenever you feel like attacking it. You will have to make sure that you keep thinking about the bigger picture. Putting the money into an IRA (Individual Retirement Account) is a wise option because you’re only taxed when you withdraw the funds as income.
The UK also offers Individual Savings Accounts, which provide tax breaks but it isn’t just for retirement.
Once you open an IRA, you can actually invest in the stock market with it, pick up bonds, or any other products really. It’s completely up to you to figure out what’s going to be in your IRA. In some cases, you can even have precious metals like gold to your portfolio. That can be a nice hedge in uncertain financial times.
Saving for retirement is also difficult because of inflation. This is the concept that over time, your money is going to be a lot less. Remember how your grandmother whines about the price of gas today and reminds you that in her day, gas was like thirty cents a gallon? This is inflation at work.
It’s not easy to really think about all of these different things, but it’s better to start getting through it now than later. It’s going to be up to you to take action. Some people do better by making automatic payments, while others feel that it makes more sense to actually manually do it. But if you do it manually, you will need a lot of willpower in order to make it work.
Don’t forget those surprise bundles of money. If you’re in college and you get a refund on your classes, you need to apply that to your savings accounts. Just think about where you would end up later down the line if you thought this way through all facets of your life? Good luck!