Start Saving for Retirement
BIG Ideas:
- Saving for retirement early in your career can help you accumulate assets faster.
- Plan to create a budget, cut expenses, and pay down high-interest debt to free up money to save.
- Enroll in your company’s 401(k) or other retirement plan and capitalize on matching contributions, which can boost your savings.
You went to college to build a rewarding career and a brighter future, but when you’re so focused on getting a job and starting that career, it doesn’t make sense to think about retirement, right?
Uhm … wrong.
The start of your career is a great time to plan and save for retirement because it gives the money you save even more time to grow.
Granted, you may have your eye on other shorter-term financial goals like finding a place to live, buying a car, and maybe even getting married and buying a home someday. But, you really can save for those goals and retirement. Read on to see how.
Get Your Financial House in Order
Before you tackle retirement saving, you’ll need to take a few smart steps to get your finances ready:
- Establish a budget. Budgeting isn’t hard, but it is one of the most important financial skills you’ll need in your life. With a monthly budget, you can gain greater control of your spending and work toward your financial goals.
To create your budget, track all your monthly expenses and separate them by needs versus wants to help you determine ways to reduce your expenses and free up money for saving.
- Build an emergency fund. Life is full of unpredictable expenses. An emergency fund can ensure you’re prepared for them. To make building your fund more manageable, set a realistic goal to set aside $1,000 and then work up to saving three to six months of living expenses. Saving is not that hard if you make it a habit.
- Plan to pay off debt. You may have accumulated debt while in school. It happens, but now that you’re adulting, it’s time to get rid of it. Start by listing all your debt and the interest rates you’re paying, including student loans and credit cards.
Then, pay off debt with the smallest balances first, or start with the debt that has the highest interest rate. Once you’ve paid off your debt, try to pay your credit card bill in full to avoid high interest rates, which can exceed 20%. Yikes!
Get Ready to Roll on Retirement Savings
Once you have your everyday finances in order, start focusing on your future and retirement. Here’s what you can do:
- Enroll in your company’s retirement plan. When you land your first job (Yay you!), take advantage of your company’s 401(k) or 403(b) retirement plan, which lets you save for retirement before taxes. If your company offers matching contributions, ensure you contribute enough to take advantage of the match.
Also, soak up any retirement planning resources and workshops your company offers, which can help you build your knowledge and ensure you make the right choices.
- Save with IRAs. Once you have your 401(k) fully funded, try to save additional money with a combination of traditional and Roth IRAs.
With a traditional IRA, you can grow your retirement savings tax-deferred, but you will have to pay those taxes in retirement.
In contrast, with a Roth IRA, your contributions are taxed, but you’ll enjoy tax-free withdrawals in retirement. Talk to a tax advisor to learn more.
- Up your savings game over time. Your retirement plan will evolve as your career and life progress. Make sure to review your savings and increase your contributions as your income rises.
- Understand the value of compounding interest. A dollar saved or invested today has many years to grow, especially with compounding interest, which allows you to build savings not only with the money you contribute but also with the interest you earn. Compounding interest can help you if you save early.
For example, if you started saving $300 a month at the age of 22 at an average interest rate of 8%, you would accumulate $1.3 million at age 65.If, however, you started saving the same amount at age 35 at the same interest rate, you would accumulate just $686,000 at age 65.
- Stay the course. Your financial life can take you in many directions, such as job loss, the birth of a child, or a home purchase. If you need to reduce your savings, work on getting back on track as soon as possible. Remember, any amount you save for the future can add up over time.
- Set retirement goals and benchmarks. Wondering how much you should save for retirement? Some research and field professionals suggest as a general rule saving at least 1x your salary by age 30, 2x your salary by 35, and so on.
- Remember, you have the power of compounding interest and potential matching contributions from your company to help you boost savings along the way.
Brazos is Here to Help You Build a Brighter Future
For more than 40 years, Brazos Higher Education has been helping students build brighter futures.
As a non-profit, we can offer you low rates and personal service to help you refinance your student loans and build the bright future you’ve worked so hard to build. Contact us today!