Overview: How to Save for Retirement | Best Ways to Save for Retirement
No matter your age, it’s never too early to start saving money for retirement. Thinking about how to start saving for retirement as a young adult means the ability to save more over time and live more comfortably once retirement finally rolls around.
In fact, starting young is the best way to save for retirement. Of course, waiting until you’re older to start saving money for retirement doesn’t mean that it’s too late. But it will be more important for you to find the best way to save money for retirement to make sure you get the most from your fund.
Either way, this AdvisoryHQ guide will help you figure out how to save for retirement regardless of how much you are starting with or at what age you begin. We’re going to cover some of the best ways to save for retirement, as well as how to start saving for retirement, to assist you in figuring out both your long-term and short-term goals.
Let’s get started on how to save money for retirement.
Benefits of Saving Money for Retirement
Before you start saving money for retirement, you might be asking yourself, “why?” Why is it important to think about how to save for retirement, especially for young people, and what are the long-term benefits? It’s important to know the benefits of saving money for retirement and to understand the reasons for doing it.
For starters, saving money for retirement means that you’ll have more money later in life – when you might need it most. An important aspect of living comfortably in old age means having access to money without the need to continue working. The earlier you think about how to start saving money for retirement, the fewer concerns you’ll have when you do approach retirement.
Image source: Pixabay
The long-term benefits should be at the front of your mind when you’re thinking about how to save for retirement. It’s not just about putting a little bit of money away now and then. Knowing how to start saving money for retirement is much more complex than that, and, if done right, it’s much more lucrative as well.
Starting early doesn’t just mean you have more time to put money away, it also means that you have more time to earn money on your money. This is a core concept of how to save for retirement since the money you save will also earn interest over time. The longer it earns interest, the better. This is called “compounding,” and it means that even a small start is one of the biggest ways to save for retirement.
See Also: At What Age Can You Retire?
How to Save for Retirement
Now that you understand the benefits, it’s time to look at specific ways of how to save for retirement. Earlier, we mentioned that earning compound interest is the best way to save for retirement, but how exactly do you do this, and how do you turn that into retirement savings? Saving money for retirement isn’t just about putting money away and hoping it magically grows. Below are several options for how to grow your savings for retirement.
Monthly Contributions Toward Retirement
The first important thing is to make sure you’re saving enough money every month or every year. When looking at how to save for retirement, you need to consider how much you can afford to save each month or, in other words, how much you can cut your budget each month. Of course, putting aside as much money as possible each month is the best way to save money for retirement. The older you are, the truer this is, but there are even greater benefits to cutting your budget and putting more into savings when you’re young, which are discussed below.
The next part of how to save for retirement is finding a good account that will earn you plenty of interest on your money. That might be with your bank or it might be specifically through your employer, such as a 401(k). It could even be investing in something – like a business, stocks or property – if you have enough money and can afford to invest wisely. How to save for retirement can vary depending on how much you earn and what your current situation is.
As mentioned before, the more money you put in and the earlier you start, the more you can “compound” the interest, and you’ll be saving money for retirement just by having money in that account. The earlier you start, the more interest you’ll earn, which adds up over time exponentially. And yet a bank account may not be one of the best ways to save for retirement. Why?
Pension Plans and 401(k)s
A good pension plan with your employer can end up being one of the best ways to save for retirement and, in fact, one of the easiest ways as well. Part of the reason for this is that your employer can do a lot of the work for you and might even add extra money on top of your own. You can also gain access to better interest rates than those that your local bank might be offering.
A 401(k) allows you to defer tax on the money that goes into your pension fund, meaning that you end up putting more away now since you earn more interest on the money you put away compared to saving it yourself. This is one reason that a pension is often considered the best way to save for retirement and is something you should almost certainly consider.
Don’t Miss: Average Retirement Savings
Finally, if you find yourself with a lot of spare money all of a sudden, either due to an unexpected windfall or simply because your savings are paying off exceptionally well, you might want to consider investing your current money, which can earn you significantly more than any form of savings but that also comes with its own risks.
Image source: Bigstock
In terms of how to save for retirement, it can be a risky business, but if it pays off, then you won’t even have to worry about how to save for retirement because, by the time you retire, you’ll probably be earning a significant amount of extra income anyway.
Investing your money might mean buying property to rent out or to sell on at a higher price later. It could also mean investing money in a business in return for a share of the profits. It may also involve investing in the stock market, which can be lucrative if you have a specialist to handle it for you.
However, all of these options require a high upfront cost, and if something goes wrong in the market you’ve invested in, you can find yourself losing, rather than gaining, money. This makes investing a high risk with high rewards and probably not the best way to save for retirement, but rather something to consider for earning extra money to save away instead of being your main plan.
All-in-One Change Management Tools
Top Rated Toolkit for Change Managers.
Get Your Change Management Tool Today...
Best Way to Save for Retirement
So which of these is the best way to save for retirement? If you’re worried about how to start saving for retirement, the clear winner would be getting a 401(k). It allows both you and your employer to add money to your pension before it’s taxed, so you’re getting a boost to your savings straight away. On top of that, it’s easy to set up and access, and you won’t make the mistake of tapping into it on a random whim.
If you’re worried about how to save for retirement while still having access to that money from time to time, however, then the best way to save for retirement is to set up a savings account with your bank. Although you won’t get the pre-tax benefit that you would from a 401(k), you will still be able to access the money in dire circumstances.
Popular Article: How Much Should You Have Saved for Retirement by 30, 40, 50, or 60
How to Start Saving for Retirement
Firstly, ask your employer if it has a pension plan in place. A lot of employers will be able to offer you a place on a 401(k), and some will have more specific plans in place depending on the sector you work in. Your employer should be able to help you plan how to save for retirement on one of these plans and explain its specific rules.
Once you’ve signed up for a plan, budget out how much money you need from each paycheck (usually on a monthly basis). Make sure to take emergencies and other forms of saving into account, and, if you can, try to cut back on some things in order to help save. Then, put as much of your paycheck as possible, that you won’t need for your monthly budget, into your retirement savings. Saving as much of your spare money as possible into your pension is the best way to save for retirement and will ensure you can live comfortably when you do retire. In addition, your employer will probably match some of this money too.
If your employer doesn’t offer a pension plan, then you need to think about how to start saving for retirement for yourself. In this scenario, you’ll want to shop around for a bank account with the best interest rates possible to start growing your savings.
In this case, create a budget just like before, but you don’t need to take other savings into account since your retirement account will probably be the best way to save for retirement as well as other savings at the same time. Put as much of your money as possible from each paycheck into your high-interest savings account and let it accrue interest over time. When it comes time to retire, you’ll have a nice pot of money waiting for you to live on.
Regardless of the options, you should begin thinking about how to save for retirement as soon as possible. Don’t put it off until tomorrow, next month or next year; start saving money for retirement today! Every paycheck that doesn’t put money into your retirement fund will mean even more money and interest you’ll be missing out on when it comes time to retire.
Read More: Best Retirement Communities in Florida
AdvisoryHQ (AHQ) Disclaimer:
Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info.
Note: Firms and products, including the one(s) reviewed above, may be AdvisoryHQ's affiliates. Click to view AdvisoryHQ's advertiser disclosures.