Saving for retirement is a big deal, so it’s naturally something people worry about. Your older years will require enough money to survive when you’re less able to work, so it’s essential to start putting away money now. Are you on the right track for retirement?
There aren’t hard and fast rules about saving for retirement, but you can put yourself on a financially sound path. Ask yourself these five questions to gauge your status.
1. How Much Have You Invested So Far?
Everybody has to start somewhere with their retirement savings. Ask yourself how much you’ve stored and compare the total with your age. If you’re in your 20s, you might not have allocated funds just yet, while older adults have been contributing to their funds for decades. A 2023 Transamerica Institute report says baby boomers started saving around 35, whereas 25 is the median age for millennials.
Keep track of how much people save by your age group. The Federal Reserve says the average person between 35 and 44 has $141,000 in their retirement accounts. If you’re under 35, researchers expect you to have about $49,000 accumulated.
2. How Much Do You Contribute Monthly?
Federal law limits how much you can contribute annually to your retirement accounts, but you can still put in a lot of cash. The Internal Revenue Service says employees can contribute up to $23,000 in a 401(k) or $7,000 in an individual retirement account (IRA). Getting the most from your funds means making steady deposits all year and letting interest build up over time.
Experts say young people should contribute 10% of their gross salaries to start their accounts well. While your retirement savings are crucial, you don’t want to deplete the money you have for everyday use. For example, you should have an emergency fund ready for a failed oil pump or unexpected medical bills. Outline your budget to see how much you can safely contribute to both accounts.
3. Are You Maxing Your 401(k) Matching?
Getting retirement benefits from work can lead to a positive financial outlook in your golden years. 401(k) accounts give you an advantage through employer matching. Your company will contribute as much as you do to your account, thus increasing your retirement savings and allowing more room for growth.
Employer match can be motivation to allocate more money toward retirement. For instance, suppose you contribute 3% of your salary toward your 401(k). Your employer matches up to 5%, so you increase your contribution to maximize this benefit. With the employer match, your contributions now represent 10% of your salary. Research shows about 84% of companies with 401(k) plans match employee contributions, so this incentive can put you on the right track to retirement.
4. Do You Have Other Retirement Accounts?
While a 401(k) plan is commonplace, your retirement plans don’t have to stop there. Do you have extra cash each month you want to use for investing? You can set up another account — such as an IRA — to increase your wealth and set yourself up for success.
There are multiple types of IRAs, with traditional and Roth being the most popular choices for investors. Each has pros and cons, so deciding which is better is up to you. A traditional IRA lets you deduct contributions from your annual tax filing, but your withdrawals will face a tax in retirement. While you don’t get tax deductions from a Roth IRA, your money grows tax-free into retirement.
When deciding between these accounts, use an online calculator to see how your funds will be in retirement. These tools account for annual savings, investment rate of return and years until retirement to see how much your wealth will grow.
5. When Do You Want to Retire?
Some people work well into their 70s, whereas others call it quits in their 50s. Research shows 61 is the average retirement age in the United States. What age do you plan to retire? Setting a goal gives you more clarity and better direction in your planning. Financial advisors can help you determine your annual contribution needs and what strategies you should take to reach your goal.
Readying Yourself for Retirement
Retirement might seem far away, but reviewing your financial progress is essential. You need a reliable income source when you’re older and less able to work, so ensure your savings fit your needs. Ask yourself these five questions and contribute toward a financially healthy retirement.
Author Bio
Oscar Collins is the editor-in-chief at Modded, where he writes about health, fitness and more. Follow him on Twitter @TModded for regular updates on his work.