It really doesn’t matter your age, you can start saving for retirement. The real concern should be, how much you should actually save for retirement. It can be overwhelming to think about saving for retirement when you might hardly have enough at this point to cover all of your bills.
If you are still trying to figure out some real-life tactics to end financial stress, then saving for retirement might not be the first thing on your list. However, it should still be on your mind and you should at least have some kind of plan in place.
Many people dream of retirement as jet-setting around the globe, lounging on a beach on a small tropical island, or spending their days creating things in their workshops. However, this is not the case for so many retirees. All too often after one retires they are met with health issues, restricted funds, and dwindling savings accounts. With some advanced planning, many of these hardships can be avoided.
This post may contain affiliate links, which means that if you click on one of the product links, I’ll receive a commission or other benefit at no additional cost to you. Thank you for supporting The Daily Change Jar.
Want access to the Free Printables Library with loads of resources for saving money, making a side income, and managing the money you already have? Enter your info below to get instant access to all the FREE goodies!
Let me know where to send your FREE access to my resource library of frugal resources and entrepreneurship trainings!
I have invited guest contributor Michael Craig here today to discuss his expert tips on how to save for retirement.
How to Actually Save for Retirement
One of the most common questions I get asked is how much should I save for retirement? Everyone wants to retire. The sooner the better! But how do you get there? The calculation rests on a number of future circumstances that nobody can predict. Things like the cost of living (inflation), your salary and how long you’ll live to name a few. While there’s no way to know the exact outcome of these future circumstances you can plan for how you think they’ll play out in order to put a retirement plan together.
If you’re looking for a quick and general rule of thumb on how much to save, there’s one rule that’s often cited. By age 35, you should have twice your annual salary saved. By age 40, you should have three times your annual salary saved. By age 65, you should have eight times your annual salary saved. This is a basic way to estimate how much to save, but it’s not personal to you. To get a better estimate of how much to save you can follow these steps.
1. Find out how much you’ll spend when you retire
The first step is thinking about what your life will look like when you retire. Do you intend to spend more or less than you currently do? Many people think they will spend less and forecast they’ll need 80% of their current income in retirement. This is because they’ll save on some expenses in retirement. Those expenses might include supporting your kids, paying a mortgage or commuting to and from work every day. Remember that some expenses might also increase when you retire. Expenses like healthcare or hobbies you plan to take up. The joys of retirement! There’s no time like the present. Get a pen and paper and start figuring out how much you’ll need when you retire.
2. Figure out how much you’ve saved
Next figure out what you already saved for retirement. Have multiple retirement accounts lying around? Now is the time to find them and figure out how much of a nest egg you have. If you haven’t saved anything as of now don’t panic. The next best time to get started saving for retirement is right now! Once you know how much money you’ve saved and how much you need in retirement you’ll be able to figure out how much you need to save to make up the shortfall. If that sounds hard, don’t be put off there are lots of tools to lend a helping hand.
3. Calculate how much you need
To calculate how much you need to save you’ll need to take into account many other factors aside from your retirement spending and savings. You’ll need to factor in the returns you make on investments, how much fees you’ll be charged, the taxes you’ll pay, the age you’ll retire, salary increases you’ll have, your life expectancy, the list goes on.
That long list should not put you off. The wonder of modern technology has given rise to many online calculators that can do all the math for you. If you live in the US you’re spoilt for choice in terms of retirement calculators to choose from. Should you live in Canada check out this Wealthsimple retirement calculator. If you reside elsewhere, try and find one specific to your country so that it takes into account your local tax rates. Free tools are incredibly useful but they rely on assumptions that won’t be suited to everyone so it’s wise to check in with a financial advisor before making any retirement decisions.
Top Tips for Retirement Saving
Now that you’ve figured out how much to save, here are a few tips to help you get retirement ready.
Save as much as you can
It goes without saying the best way to get retirement ready is to start saving as much as you can as soon as you can. One painless way to do this is by auto-depositing money from your checking account to a retirement account on payday. You’ll hardly miss the money! If you’re struggling to find enough money to put away for retirement, try creating a budget. You’ll see where you’re spending your cash and it will help you think of ways to cut back on spending.
Contribute to registered accounts
A registered account is an account specifically created for retirement savings. They often come with nice benefits like tax breaks. In Canada an RRSP is a popular registered retirement account and in the US a 401(k) or IRA is a popular choice. You should aim to max out these accounts to avail of the tax savings before putting your retirement savings anywhere else.
Get the help of an investing service or advisor
Now that you plan to save money for retirement you’ll need somewhere to keep it. An online investment service or a financial advisor will be able to help invest the money for you. Rather than go all in on a stock or a handful of them select multiple equities and you’ll benefit from diversification. This means if one part of your investment portfolio takes a hit it won’t pull down your entire portfolio.
Watch out for high fees
Fees are how financial institutions and advisors like myself make money. There’s absolutely nothing wrong with paying a fee for someone to help you with investing or retirement planning. I’d recommend it as you’re getting a solid financial plan, which everyone should have. That said it’s important to know what you’re getting for your fees and to make sure you’re not being overcharged.
Michael Craig is a Chartered Investment Manager and Associate Portfolio Manager at Wealthsimple. He’s been working in the financial services industry for 15 years. Michael holds a Masters Degree in Business Administration from the Rotman School of Management.
What is your retirement savings goal?
The Frugal Girl's Guide to Meal Planning
Enter your name and email and grab The Frugal Girl's Guide to Meal Planning like a Boss! Save time and money by meal planning the easy way!