If you're in your 20s or 30s, retirement probably seems far, far away. Time can fly by, though, and before you know it, you may find yourself wishing you had taken action sooner. By contemplating retirement now, you could take action that will serve your future self and loved ones in a huge way down the road. Funding your retirement decades in advance is a form of delayed gratification. Putting your hard-earned money away instead of using it now might be a hard concept to buy into, and certain questions might sneak into the back of your mind. If you anticipate making far more income later on, can't you just wait to start saving until then? Are you missing out on opportunities by not starting to save now? What if you need the money for school or to buy a home? These are all valid concerns. The good news is that you have more options than you may think.
Tip 1: Start saving with a balanced approach.
We are all unsure about what the future may hold, but this is where a balanced approach can be very useful. Rather than spending all of your available money (zero delayed gratification) or saving as much as humanly possible (100 percent delayed gratification), consider splitting the difference. With a mixed approach, you can spend some of your money now to enjoy the present, but also save some of your money for later so that no matter what may happen, you will have developed savings habits and financial assets that could be of significant value in the years to come.
Tip 2: Don't leave money on the table.
If you can afford to contribute and your employer offers to match contributions to your retirement plan, that offer is essentially money on the table. For many employer-provided retirement plans, employers will often match a certain percentage of your contributions up to a particular, pre-identified total amount. If you choose not to contribute to your retirement plan, you'll basically be abandoning the money your employer has offered to contribute. If your employer offers a matching contribution and you are comfortable with the details of the plan, determine how much you can afford to contribute, then set up an automatic transfer from your paycheck so you can start piling up savings right away.
Tip 3: Consider alternative retirement plans.
When you contribute to a retirement plan, the ultimate goal should be for long-term savings for your retirement. However, when you are just starting your career, money can be tight with only so much to go around. That may discourage you from starting to save because of the 'what if I need the money for school or a house or something else' scenarios. The good news is that the government recognizes many of these concerns and has allowed certain retirement plans to have options where you can withdraw money for qualified school expenses, a first-time home purchase, certain financial emergencies or a qualified loan.
Different retirement plans offer varying advantages, including differences in when you would need to pay taxes. For example, younger people just starting their careers may want to consider a ROTH retirement plan, which generally involve contributions with after-tax money and can be better-suited for those in a lower tax bracket and lower income range. Depending on your overall financial picture, a traditional IRA, the ROTH model, an alternative plan or some combination may be the best fit for your situation. Do your research and see what works best for you.
Don't let time sneak up on you. If you wait too long to start saving, it can be much harder to fund your retirement or even too late to take advantage of certain opportunities. The amount you start at isn't as important as simply building the habit of saving on a regular basis. The time you spend in retirement could equal or even exceed the amount of time you are working so if you're able to afford it, it's important that you start the practice of saving now. Make things easier on yourself and commit to a few key moves now that can have a huge impact later on.
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