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Saving for retirement can seem overwhelming—even downright scary—because of all its uncertainties. How much will I need? When will I retire? How long must my savings last? None of us has a crystal ball. But you can—and should—make some educated guesses in order to come up with a savings goal and then a plan for meeting it. Here are a few steps you can take.
Find Your Number
To help you estimate how much you’ll need to save for retirement, find an online calculator you’re comfortable using. (Just Google the words, “retirement planning calculator.”) Tip: Choose one from an independent entity rather than a company that manages 401(k)s and IRAs in order get a more objective estimate. For example, the average 40-year-old making $40,000 a year who’s planning to retire at age 67 will need to save between $400,000 and $1,000,000 for retirement. Why such a wide range? That’s where those educated guesses come into play. You have to make some assumptions about when you’ll retire, how much your annual pay raises might be—even how long you’ll live. The good news is, because the calculators are interactive, you can change these assumptions and immediately see the effect on how much you’ll need to save.
Once you have a number in mind—even if it’s an intimidating one—start saving toward it right away and stick with it. Waiting will only hurt your chances of meeting your savings goal, partly because with every passing year, you lose some of the power of compounding—that is, earning interest on your interest. The chart below shows how putting even a small amount away each week can make a big difference over the long haul.
|Save This Much Each Week:||Have This Much* After:||Have This Much* After:||Have This Much* After:|
|10 Years||20 Years||30 Years|
*Hypothetical example assumes weekly deposits in an IRA averaging a 4.00% interest rate, compounded daily (4.08% annual percentage yield). Your interest rate and APY may differ.
Decide Where to Put Your Money
Fortunately, there are often tax advantages and other incentives to save for retirement.
Look To Your Employer
If your company offers a 401(k) or 403(b), participate in it! The money usually can be contributed pre-tax —meaning you don’t pay taxes on it until you withdraw it. And many employers “match” a percentage of what you save, essentially providing you with “free money.”
Open an IRA
Often times, IRA contributions can be tax-deductible (check with your tax advisor). And opening one at Millbury Savings couldn’t be easier!
No matter where you are on the road to retirement, don’t wait any longer to begin saving for it.