If you start saving for retirement early on, you have a great advantage. In fact, starting just five years early can mean a difference of several hundred thousand dollars by the time you retire. The ideal time to start saving for retirement is not later than 30 years old. This age gives you a chance to put aside a small amount each month rather than a large lump sum. For example, if you start saving in your late 20s, you need to put aside about ten percent of your annual salary; if you start in your early 40s, the percentage goes up to 30 percent. But whatever your plans on saving for retirement are, here are a few guidelines on what you should keep in mind.
Before you even start saving for retirement, consider how much money you really need to keep your current lifestyle after 60. Do you want to keep the same level of monthly salary as you have now? Do you want to be able to travel and spend more money annually than you do now? Experts estimate that you need at least 75 percent of your current salary to keep the same lifestyle you have now. If you have outstanding credit card debt, student loans, mortgage payments or medical bills, you should plan on paying everything while you are still saving for retirement.
Once you know how much you want to save, create a plan of action you can live with. The idea of saving 30 percent of your monthly income may sound great, but if it makes you miserable, then it is not worth it. Find out what your employer is contributing and the size of your IRA and 401(k); then call the Social Security Administration and find out about Social Security benefits and what you can expect in terms of payments after you retire. Some employers offer profit sharing or fund matching plans, in which they contribute along with you.
Finally, draw up a savings plan you can live with. Make a list of the things you can give up and analyze where your money is going and how to change the way you spend. Saving for retirement should be a priority but not a burden. Remember to review your savings plan regularly. What is working today may not be the best course of action a year from now.
