Retirement: It is Never Too Early to Start Saving

Have you worked long enough that you see retirement on the horizon? Are you going to have enough money? Whether your nest egg is big or small, there are things you can do to reduce your expenses to help stretch your retirement savings.

Here are some things to consider when planning for retirement:

Know your retirement needs

One of the first things you should be doing is looking at your funds – things like money you have in a retirement account, funds in the bank, possibly a pension, and what you will get each year from Social Security.

Check now to see if those sources will meet your needs after retirement. Work out a future budget to see if your income will meet your expenses, factoring in monthly utility bills, house or car payments, and things you would like to do, such as traveling.

Consider 401(k) plans and IRAs

Saving for retirement is important for your long-term financial well-being, but what is the best way to make that happen? Experts say that it is never too early to start and that some of the most common options are 401(k) plans and IRAs.

What is the different between a 401(k) and an IRA?

• 401(k) – For a 401(k), contributions are deposited into your retirement account before they are taxed as income and you are usually given a fixed number of investment options to choose from, such as a variety of mutual funds. A big advantage of these plans is that many employers match your contribution up to a certain percentage of your income.
  
  With a 401(k) you can start withdrawing money at age 59½ and no later than age 70½. Since this is a tax-deferred contribution, you do not pay any income tax until you start making withdrawals and then it will be taxed at your income level at that time.
   
• IRAs – An IRA is usually not employer driven. These are accounts you open and fund on your own and you will likely have more investment options. However, IRAs have lower annual contribution levels than a 401(k) and they do not have employer match options.
  
  If you contribute to a traditional IRA, that money may be tax-deductible but you will pay income tax on withdrawals you make after age 59½. With a Roth IRA, the money you save will already have been taxed as income, but the advantage is that qualified withdrawals in retirement will be tax-free.

Start saving, keep saving, and stick to your goals

No matter what age you retire, you will need to keep in mind that you will no longer be bringing home your current paycheck, and that much of what you will be spending is not going to be replaced with new money.

The sooner you can start  money for the future, the more secure you are going to feel about retirement.

Pay off big expenses

When it comes to big expenses, such as your house or car, it would be beneficial if you had them paid off prior to retirement or shortly after. This can save you hundreds to thousands of dollars each month.

Review your insurance needs. Do you still need life and disability coverage? Is there a way to save money on car insurance? Are your health needs covered?

If you use your credit card regularly, get in the habit of paying your bill in full each month, so you are not wasting money on interest charges.

Look for things like senior discounts or free things to do. Consider cutting back on how often you go out for meals or drinks. You will be amazed at how much you can save.

So while the right time to retire might be seem a little blurry right now, the need to save for retirement is crystal clear. It will take some work, but with the right mindset and with good advice, it is likely you will find ways to save money, cut costs and still have a great time in retirement.

To help determine what is best for you and your situation and to learn more about contribution limits and withdrawal rules, talk with a financial professional about your options.