It's Never Too Late to Save Money
http://www.WomensJournals.com/articles/59/1/Its-Never-Too-Late-to-Save-Money/Page1.html
Sandra Reynolds, CFP
Sandra Reynolds, CFP® specializes in the financial issues affecting women and their loved ones.
Sandy has been a guest speaker and participant at the State Treasurers’ Money Matters Conference for Women in Massachusetts and Maine. She has also been quoted in articles for “Investment Advisor”, “Financial Planning”, and “The Journal of Financial Planning” magazines as well as appearing on WOMR 92.1 radio. She is a retired teacher and adjunct faculty for the College of Financial Planning.
Sandra Reynolds, CFP® welcomes clients from all walks of life with varying income and net worth levels. She offers clients a safe, relaxed and non-judgmental atmosphere where they can explore their values, goals and life plans.
Securities and Investment Advisory Services Provided through Capital Analysts Incorporated Member FINRA/SIPC.
Please feel free to contact Sandy at 508-636-6521 or visit www.reynplans.com
By Sandra Reynolds, CFP
Published on 02/22/2007
Most people have good intentions about saving for retirement. But few know when to start or how much is enough. Far too many people use credit cards as an additional income source and sink further into debt. This leaves precious few dollars to put aside for savings and retirement. And, the interest on credit cards builds up much faster than interest on a savings account.
It's Never Too Late to Save Money
Most people have good intentions about saving for retirement. But few know when to start or how much is enough. Far too many people use credit cards as an additional income source and sink further into debt. This leaves precious few dollars to put aside for savings and retirement. And, the interest on credit cards builds up much faster than interest on a savings account.
Of all workers, over half have saved less than $25,000 for retirement.1 A better approach would be to allocate a certain amount for savings every month and pay yourself as though you were a creditor so you would treat the payment like any other expense.
How much should I save for retirement?
A good rule of thumb for 20 – 29 year olds is to start with a minimum of 10% of your earnings and invest that money in retirement savings and then take half of all raises and add them to the 10% going forward. If you are older, say 30 – 45 you should start with a higher percentage, like 12 - 15% and then take half of all raises going forward. Of course, if you are like a lot of people and haven’t really accumulated much in retirement savings by the age of 45, you may want to consider targeting 15 – 20% of your earnings for retirement so that you can actually retire while still young enough to enjoy it.
Of all workers, over half have saved less than $25,000 for retirement.1 A better approach would be to allocate a certain amount for savings every month and pay yourself as though you were a creditor so you would treat the payment like any other expense.
How much should I save for retirement?
A good rule of thumb for 20 – 29 year olds is to start with a minimum of 10% of your earnings and invest that money in retirement savings and then take half of all raises and add them to the 10% going forward. If you are older, say 30 – 45 you should start with a higher percentage, like 12 - 15% and then take half of all raises going forward. Of course, if you are like a lot of people and haven’t really accumulated much in retirement savings by the age of 45, you may want to consider targeting 15 – 20% of your earnings for retirement so that you can actually retire while still young enough to enjoy it.
It's Never Too Late to Save Money
Money is tight now. Couldn’t I just wait and contribute more later?
Let’s look at two friends, Anne and Sally, who are both 45 and saving for retirement 20 years from now. Their financial advisor has told them that they need some savings in addition to their employer-sponsored retirement plans. Both save $275 a month for a 10-year period, and both earn 8 percent on their investments. But there is a difference.
Anne starts saving today and saves for 10 years. But Sally waits 10 years before starting to save. Both will have put away a total of $33,000. After 20 years, Sally, the procrastinator, will have accumulated $49,534, whereas Anne, the early starter, will have accumulated $106,941. That’s more than twice as much available for retirement with the same initial investment.
Anne starts saving today and saves for 10 years. But Sally waits 10 years before starting to save. Both will have put away a total of $33,000. After 20 years, Sally, the procrastinator, will have accumulated $49,534, whereas Anne, the early starter, will have accumulated $106,941. That’s more than twice as much available for retirement with the same initial investment.
(This is a hypothetical example used for illustrative purposes only and does not represent the performance of any specific investment). This example makes a strong case. Not only does it pay to save, but if you start sooner, you can take advantage of the power of compounding. For example, your deposits earn interest and so does your reinvested interest. This is a good example of letting your money work for you. The sooner you start saving for retirement, the more you will have when you retire. And, the sooner you start saving for retirement, the sooner you will be able to retire.
Let’s look at two friends, Anne and Sally, who are both 45 and saving for retirement 20 years from now. Their financial advisor has told them that they need some savings in addition to their employer-sponsored retirement plans. Both save $275 a month for a 10-year period, and both earn 8 percent on their investments. But there is a difference.
Anne starts saving today and saves for 10 years. But Sally waits 10 years before starting to save. Both will have put away a total of $33,000. After 20 years, Sally, the procrastinator, will have accumulated $49,534, whereas Anne, the early starter, will have accumulated $106,941. That’s more than twice as much available for retirement with the same initial investment.
Anne starts saving today and saves for 10 years. But Sally waits 10 years before starting to save. Both will have put away a total of $33,000. After 20 years, Sally, the procrastinator, will have accumulated $49,534, whereas Anne, the early starter, will have accumulated $106,941. That’s more than twice as much available for retirement with the same initial investment.
(This is a hypothetical example used for illustrative purposes only and does not represent the performance of any specific investment). This example makes a strong case. Not only does it pay to save, but if you start sooner, you can take advantage of the power of compounding. For example, your deposits earn interest and so does your reinvested interest. This is a good example of letting your money work for you. The sooner you start saving for retirement, the more you will have when you retire. And, the sooner you start saving for retirement, the sooner you will be able to retire.
It's Never Too Late to Save Money
How can I make sure that I put money away for retirement?
If you have trouble saving money on a regular basis, you may try savings strategies that force you to save. Examples of forced savings strategies are automatic withdrawals from your savings or checking account into in a mutual fund, IRA or Roth IRA, and direct payroll deductions into a company sponsored retirement plan. These financial vehicles allow you to take your money directly out of your savings or checking account and/or your paycheck as an expense. This means you’ll be paying yourself even before you pay any other expenses. Some of these options, such as an IRA, Roth IRA and employer-sponsored retirement plans, also have deferred tax advantages that further increase the advantage of saving early.
Should I invest in a Roth IRA or a traditional deductible IRA?
Traditional IRAs have long been popular with investors. For many people, they offer a substantial current income tax deduction. However, when you withdraw the money, you have to pay income taxes on the amount you withdraw because you never paid income taxes on that money in the first place.
A Roth IRA doesn’t give you any income tax deduction but offers tax deferred accumulation like a traditional IRA. Under current tax law however, the distributions (withdrawals) are income tax free (if certain conditions are met). The assets in all IRAs, both Roth and traditional, grow tax deferred.
If you have trouble saving money on a regular basis, you may try savings strategies that force you to save. Examples of forced savings strategies are automatic withdrawals from your savings or checking account into in a mutual fund, IRA or Roth IRA, and direct payroll deductions into a company sponsored retirement plan. These financial vehicles allow you to take your money directly out of your savings or checking account and/or your paycheck as an expense. This means you’ll be paying yourself even before you pay any other expenses. Some of these options, such as an IRA, Roth IRA and employer-sponsored retirement plans, also have deferred tax advantages that further increase the advantage of saving early.
Should I invest in a Roth IRA or a traditional deductible IRA?
Traditional IRAs have long been popular with investors. For many people, they offer a substantial current income tax deduction. However, when you withdraw the money, you have to pay income taxes on the amount you withdraw because you never paid income taxes on that money in the first place.
A Roth IRA doesn’t give you any income tax deduction but offers tax deferred accumulation like a traditional IRA. Under current tax law however, the distributions (withdrawals) are income tax free (if certain conditions are met). The assets in all IRAs, both Roth and traditional, grow tax deferred.