Saving for retirement is the longest financial endeavor you’ll ever undertake in your life. Whereas you may spend around 20 years raising your children, and 30 years paying off the mortgage on your home, if you start saving for retirement when you first enter the workforce in your late teens you may have over 50 years to plan for it.
But in order to be successful, you’ll also need to do planning in the short and medium time frames as well, and constantly balance these efforts with your long-term planning.
With that in mind, here are five ways you can save for retirement over the course of the next five years.
Start Today. The most important element of successful retirement saving is simply to do it, and to do it as early and as often as possible. The more time you give your money to grow, the larger your nest egg will be when it comes time to retire.
Prioritize Your Savings. You can boost your effective savings rate by prioritizing your retirement savings into those accounts that provide you with the most benefit. For example, maximizing your annual contributions to your IRA and 401(k) plans should certainly be the first step. But even within these categories you still have decisions to make.
For example, contributions to a traditional IRA might be tax-deductible in some years, and you have to weigh this against the potential long-term benefits of a Roth account. Furthermore, contributions to a 401(k) plan may be particularly valuable if your employer matches those contributions, but this may need to be balanced against a limited choice of investment options.
Downsize Expenses Strategically. If your current income level doesn’t support maximizing your retirement account contributions, then you should work to identify areas of your budget that you can downsize.
Re-Examine Your Lifestyle. Since your goal is to maximize the savings you accumulate over the next five years, you may wish to re-examine your lifestyle and make adjustments to free up additional financial resources. For example, you may wish to scale back on your family vacations in order to put more into your retirement savings.
Get Help. Finally, it can pay to seek out professional assistance if you feel like you’re not maximizing your savings potential. There are an abundance of high quality resources online, but you’ll need to distinguish between valuable resources and those that aren’t from reliable experts. Depending on the size of your retirement portfolio, you may also wish to seek out individual help in the form of an investment advisor, or perhaps another professional with your investment broker.
The most important principle to building a large nest egg is maximizing the time for your retirement savings to grow. The value of a $1,000 deposit to an IRA at age 25 will be significantly larger at age 65 than the same deposit made at age 45. Use the next five years to boost your retirement savings to the greatest extent possible.
Saving for retirement is the longest financial endeavor you’ll ever undertake in your life. Whereas you may spend around 20 years raising your children, and 30 years paying off the mortgage on your home, if you start saving for retirement when you first enter the workforce in your late teens you may have over 50 years to plan for it.
