Learn About Retirement
The days of working your entire life for one employer and getting a nice pension check with health benefits are disappearing.
If you still have a traditional pension plan from your employer, count yourself lucky. But don’t become complacent – that could change at any time.
Many companies have discontinued these defined benefit plans in recent years. They’ve replaced them with defined contribution plans – 401ks or similar plans that put more responsibility on employees to save for their retirement.
Today, you need to be accountable for your own future.
Here are 6 ideas to get you started on learning about retirement.
Begin as early as you can
There are many strategies for investing, but one of the most basic is simply to just start now. Investing now gives your money more time to potentially grow.
Although it’s never too soon or too late to begin, you can use time to your advantage by starting early and putting a concept called “compounding” to work for you.
Compounding is simply your money earning money over time, usually through interest or dividends. That money in turn earns more money. The more time your money has to earn, the more opportunity for compounding
Define your priorities
Are you sitting pretty or living paycheck to paycheck? Either way, you need to get a handle on where your money is going. That way, you can be sure it’s going to the things that are most important to you today – and in the end.
A good first step is by creating a budget – specifically, a spending plan and a way to track your expenses each month.
Knowing the numbers may help you find the money to invest and meet your other long-term needs for retirement income.
Go for the free money
If your employer offers a matching contribution to its retirement investment plan, it’s simple smarts to contribute to your retirement plan every payday.
Say your employer matches 50% of your contribution up to 6% of your total income. That means if you make $50,000 a year and contribute the maximum matched contribution amount of 6%, you’d be contributing $3,000. Your employer would put in $1,500, for a total of $4,500.
It’s like getting free money.
(Withdrawals are taxed as ordinary income and, if taken prior to age 59½, they're subject to a 10% penalty.)
Keep it mixed up
It’s a cliché, but don’t put all your eggs in one basket – particularly when it comes to your investments for retirement.
All investments have risk, some more than others. Market conditions change over time and some investments in your portfolio will outperform others.
A wise investment strategy is to limit your financial risk by spreading your wealth out across a variety of investments. It’s called portfolio diversification. Consider multiple savings and investment accounts. Choose investments that fit your lifestyle and the level of investment risk you’re comfortable with.
Diversification does not assure a profit and does not guarantee against loss in a declining market.
Don’t let debt ruin your plans
Having an aggressive plan to get out of debt and stay out is vital to your financial well-being.
Consider this scary scenario:
You have a $1,000 credit card balance with an 18% interest rate. Making only the minimum required payment each month – often 2% of the outstanding balance, initially $20 – will take more than 19 years to pay off and will cost $1,931 in interest.
If your credit card debt is spiraling, you could be mortgaging your future. And whether retirement is just around the corner or a couple of decades away, ask yourself if that’s what you really want to do with your money
Getting out of debt requires a strategy, a commitment and sacrifice, but the results are worth it.
Make it a team thing
Just like trying to quit smoking, dieting or exercise, it's easier when you have encouragement and support.
Consider sharing your goals with your closest friends and family. Get them to join you setting better habits.
Together you can all work toward a more secure future.
Take the next step
Talk to your employer about enrolling in your company retirement plan.