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January 5, 2023 Personal finances

If you are like many people, you have a lot of competing goals when it comes to spending your paycheck.  Covering daily living expenses, paying off your house, saving for your kid’s college, making your car payment – balancing all of these financial needs can be tough.  But don’t neglect one of the most important financial goals: planning for retirement.

Unfortunately, saving for retirement is something that is easy to put off.  For most of us, retirement is many years away, even decades away.  So we procrastinate by thinking that we will start “next year”… then “next year” ends up becoming several years.  But the longer you wait, the harder it is to get started and adequately save for the future.

What is the best way to start saving for your retirement now – and have the ability sooner rather than later to enjoy the people, places and things you love?  Follow these three simple steps to take the first steps toward a brighter financial future. 

  • Save Today.  Most of us have access to a 401(k) retirement plan through our employers.  If you aren’t putting part of your paycheck into the 401(k) plan, contact your HR department to see what you need to do to get started.  Start by saving 3% into the plan.  Since 401(k) contributions can be deducted pre-tax, your take-home pay will be barely impacted by a 3% deduction.  And the good news is that many employers will match some or all of your contributions.  That means for every dollar you contribute to the plan, your employer will make an additional deposit into your account.
  • Increase Your Savings.  As your pay increases, make sure to similarly increase your 401(k)-contribution amount.  Even a 1% increase each year can make a big difference over time.  Some 401(k) plans provide the option to set up automatic contribution increases annually.  If your plan offers this, take advantage of it.  How much should you be saving?  Experts say that in order to have enough money in retirement to maintain your current standard of living, you need to be saving 12-15% of your salary throughout your working career.  Your employer may contribute part of this, through a matching contribution or a profit sharing contribution.  But it is up to you to make up the difference.
  • Keep Your Money Invested.  If you change jobs, you will be able to take a distribution from your 401(k) account.  You may be tempted to think that it would be a good idea to withdraw your money and pay some bills.  But don’t fall into this trap.  Keep your money invested.  You will be able to roll your 401(k) account into an Individual Retirement Account (IRA) or you may be able to roll your account into the 401(k) plan at your new employer.  No matter, make sure you keep your money invested.  As Albert Einstein observed, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t … pays it."

No matter your age or stage of your career, it is never too late to start saving for your future. So, there is no better time to start than TODAY!

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