Saving for retirement is a big deal, so it’s naturally something people worry about. Your older years will require enough money to survive if your ability to work decreases, so it’s essential to start putting money away now. Are you on the right track for retirement?
There are no hard and fast rules about saving for retirement, but you can put yourself on a financially healthy path. Ask yourself these five questions to gauge your status.
1. How much have you invested so far?
Everyone has to start somewhere with their retirement savings. Ask yourself how much you have saved and compare the total to your age. If you’re in your 20s, you may not have any money allocated yet, while older adults have been contributing to their money for decades. This is stated in a 2023 report by the Transamerica Institute baby boomers started saving around 35while 25 years old is the average age for millennials.
Track how much people in your age group are saving. The Federal Reserve says the average person falls somewhere in between 35 and 44 have $141,000 in their retirement accounts. If you’re under 35, researchers expect you’ve collected about $49,000.
2. How much do you contribute monthly?
Federal law limits how much you can contribute to your retirement accounts each year, but you can still put in a lot of money. The Internal Revenue Service says employees can contribution up to $23,000 in a 401(k) or $7,000 in an individual retirement account (IRA). Getting the most out of your money means making fixed deposits throughout the year and letting the interest compound over time.
Experts say young people should contribute 10% of their gross salary to start their accounts on the right foot. While your retirement savings are critical, you don’t want to deplete the money you have for everyday use. For example, you should have an emergency fund ready for a failed oil pump or unexpected medical bills. Take a look at your budget to see how much you can safely contribute to both accounts.
3. Are you maximizing your 401(k) matching?
Obtaining retirement benefits at work can lead to a positive financial outlook in your golden years. 401(k) accounts give you an advantage through employer matching. Your business contributes as much to your account as you do, increasing your retirement savings and creating more room for growth.
Match between employers can be a motivation to allocate more money for pension. For example, let’s say you contribute 3% of your salary to your 401(k). Your employer matches up to 5%, so you increase your contribution to maximize this benefit. With the employer match, your contributions now represent 10% of your salary. Research shows approx 84% of companies with 401(k) plans match employee contributions so this incentive can put you on the right path to retirement.
4. Do you have other retirement accounts?
While a 401(k) plan is common, your retirement plans don’t have to stop there. Do you have extra money every month that you want to use to invest? You can set up another account, such as an IRA, to grow your wealth and set yourself up for success.
There are multiple types of IRAs, including traditional and Roth are the most popular choices for investors. Each has pros and cons, so deciding which is better is up to you. A traditional IRA allows you to deduct contributions on your annual tax return, but your withdrawals will be taxed at retirement. Although you don’t get a tax deduction from a Roth IRA, your money grows toward retirement tax-free.
When choosing between these accounts, use an online calculator to see what your money will look like in retirement. These tools take into account annual savings, investment returns, and years until retirement to see how much your wealth will grow.
5. When do you want to retire?
Some people work well into their 70s, while others stop at 50. Research shows 61 years is the average retirement age in the United States. At what age do you plan to retire? Setting a goal gives you more clarity and better direction in your planning. Financial advisors can help you determine your annual contribution needs and what strategies you should follow to reach your goal.
Preparing yourself for retirement
Retirement may seem far away, but assessing your financial progress is essential. If you are older and less able to work, you need a reliable source of income. So make sure your savings meet your needs. Ask yourself these five questions and contribute to a financially healthy retirement.
Author biography
Oscar Collins is editor-in-chief of Modified, where he writes about health, fitness and more. Follow him on Twitter @TModded for regular updates on his work.
