More Commonly Asked 401k IRA Questions
When it comes to saving for retirement people generally have more questions than they do answers. That is to say that most people just don't know enough about their retirement plans! These commonly asked 401k IRA questions cover things you're going to want to know in order to make smart decisions about your retirement plan.
When should I start saving for retirement? Right now. It doesn't matter however old you are, you want to start saving for retirement right now, today. The more you save the better quality of life you'll have in retirement, and very few people actually save enough. By the time most people are forty years old they barely have any saved and it's harder to scramble and get what you'll want. If you want to retire at all, let alone at an early age, you'll need to be saving a bit your whole life.
If I just start saving later when I won't be paying off _____ (my student loans, my mortgage, my kids braces—there's always something) I can save extra and make up the difference. Right? Wrong. This is wrong for two reasons. The first reason is that we're always paying off or saving for something in our more immediate future so there's never a great time to start saving large chunks, and it's easier to make a practice of saving a small amount each month over time than it is to try and find a way to build a large saving plan into your life. The other reason is that with 401k and IRA accounts the money you save is invested and earns you returns over the years. So the fifty dollars you put into your plan today will keep earning you money each year that it's in your account. So the fifty dollars you save today is ultimately worth more to your overall balance than the fifty dollars you save later in life. The sooner you start saving, the better!
How much should I be saving? This is an individual answer and has a lot of components to it. When do you want to retire, and how old are you now? Now figure that you'll live to be one hundred years old, how many years will you be in retirement? How much do you want to live on each year in retirement? Multiply that number by the number of years you'll be retired. That's how much you need to save---plus inflation. Then start looking at the number of years you have to save, factor in the expected returns on your investments, and decide how much you should be saving each year, and then each month. Don't let this make you panic and stay away from saving at all! If you can't save that much right now, that's okay. Figure out how much you can.