Most people will rely on Social Security as their primary source of retirement income, and that is unlikely to change. But even if Social Security doesn’t disappear, there are still other sources of income you can count on years from now. These other sources may include your workplace or personal retirement account, a pension, an annuity, the proceeds from the sale of your home, rental income, or inheritance. If you can’t count on these other sources, it’s important to plan ahead.
The longer your time horizon, the better. You can invest aggressively while you’re still young and don’t need your money for several decades. The longer you wait to save, the more compound interest you’ll earn. That way, you’ll grow your savings faster. If you invest $100 a year at a 10% annual rate, it will grow to $110 within one year, $120 after two years, and $133 after three.
Another reason to save for retirement is tax benefits. While taxes are an unfortunate evil for humanity, they are an essential component of living. After all, who wants to give up more than is absolutely necessary? The good news is that there are several states where you won’t pay state income taxes or Social Security benefits. For example, Delaware doesn’t tax Social Security benefits. The state also doesn’t levy sales tax on retirement income, so these savings are important to your future.
Saving for retirement may not be the first thing on your financial checklist, but it’s important to start early to establish a solid foundation for long-term success. While it’s difficult to save money for retirement when you’re just starting your career, the sooner you start, the less you’ll have to sacrifice from your paycheck. And if you start saving early enough, you’ll get there sooner than you’d expect.
Many people in their mid-thirties are still paying their mortgage or settling into a higher-level role. While it’s important to save money for retirement, it’s also important to keep your debt payments low. Your goal should be to maintain enough savings to cover your living expenses for at least six months, so you can afford your dreams. Remember to always have emergency savings in case something unexpected happens. You should also continue to put extra money in taxable brokerage accounts until you have maxed out your retirement contributions.
Many employers offer 401(k) retirement savings plans for their employees. You can join at any time, and your contributions are automatically deposited by your employer. These plans allow you to accumulate more money over time as compound interest kicks in. A good 401(k plan will help you prepare for retirement with the flexibility of compounding your savings over time. Even if you can’t save a large amount at first, a 401(k) plan will allow you to grow your money tax-deferred and compounded by your employer.
Many people don’t have the luxury of choosing their retirement plan. They may be stuck with a pension plan or a 401(k) plan. If this is the case, you should open an IRA or a 403(b) account. A 401(k) plan allows you to take your contributions to a new employer or roll them into an individual retirement account. If you want to save money for retirement, you can also set up a budget to help you save for your future.