Now your in your 30’s and finally have a chance to look at what your retirement will look like. Only to realize you have no idea how much to save or more importantly, how to save at all.
Fidelity Investments recommends that you have a full year’s salary saved by age 30, then twice that amount by 35 to retire comfortably. By the time retirement comes around at 67, you should have 10 times your final salary saved. The average 401(k) balance for those ages 30-39 is $42,700, Fidelity said.
The first thing you should do is understand your cash flow, said Williams, a member of the CNBC Financial Advisor Council.
“If you go and just spend time going over your budget one good time and get an understanding for the recurring expenses, you’ll find the black hole of savings,” she said.
- Once you see how much you are able to put aside, automatically put that money into savings.
- Don’t forget about building an emergency fund either. Make sure some of your savings goes into a fund for unforeseeable circumstances. This amount should be somewhere in the ballpark of $5,000-$10,000 depending on your take-home pay.
Set a goal.
- Have a specific retirement savings goal in mind, then run the numbers. Determine what you’ll need to live on in retirement, then calculate how much money you’ll need to put away to meet your goal.
If you have a debt (even student loan debt), you can find a balance between paying it off and saving for retirement.
- Federal student loans – look into debt forgiveness or into an income replacement plan, which is based on what you earn and has loan forgiveness in 20 years or 25 years. In this case, stick with a 401(k) or IRA, which have pre-tax contributions, so that your adjusted gross income will be lower, Williams suggested. That, in turn, will lower your student loan payment. You’ll be putting money away for retirement and you get rewarded for doing so, she said.
- If you have a private student loan, you can look into refinancing to get a lower rate, Williams said. Just make sure to pay over the minimum amount due. “You want to get really aggressive about paying down your student loan debt, but you don’t want to sacrifice your savings,” Williams said.
- If you have an income-based repayment plan for your federal student loan, a Roth IRA may not be right for you since it doesn’t decrease your adjusted gross income.
401(k) – If your company offers an employee-sponsored plan, at least do the employer match.
- However, saving 3% of your income isn’t going to be enough to get you into retirement. Try to go as high as you can and have a plan to reach the maximum contribution amount in two to three years.
- Set up an automatic contribution increase of 1% every year. Your goal should be saving 15% of your salary, which can include your employers match.
Roth IRAs may be a good way to save for retirement, if you meet the income requirements.
- If you are married and filing jointly and have a modified adjusted gross income of up to $196,000 a year, you can contribute up to the annual limit of $6,000. Then, if you have a modified adjusted gross income of between $196,000-$206,000, you can contribute a reduced amount.
- Enjoy money tax-free in retirement, but it’s not one-size-fits-all.
- If you feel as though $6,000 is a small percentage of your income, you may want another type of retirement savings. However, if it seems to be a large percentage, then the Roth may be all you will need.
Last but not least, pay yourself first.
- If you have small children, a college savings plan might be on your mind. However, if the amount you can save is limited, focus on your retirement first. Once you retire, you won’t be able to just walk into a bank and take out a loan. Your child, on the other hand, will be able to go to the bank and take out a loan for education.
**Information taken from an article on CNBC**
CWM Advisory, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of any agency of CWM Advisory, LLC. Examples of analysis performed within this article are only examples. They should not be utilized in real-world analytic products as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of CWM Advisory, LLC.