Not all financial decisions involve spending. Saving for retirement is one of the most important long-term financial actions an individual can take.
The process of building a retirement fund is similar to that of building good credit -- setting achievable goals and researching options are the foundation of a strong retirement plan.
Statistics, Avoidance, Reality
According to the United States Department of Labor, more than half of Americans have not calculated how much money they will need to save for retirement.
Marquita Robertson, financial education director of the Office of the State Treasurer of North Carolina, says retirement is something often not taken seriously enough early enough in a professional’s career.
"Retirement seems so far away until it is time to retire," Robertson pointed out. "Experts predict that millennials could need $1.8 million to retire."
Steps To Prepare a Healthy Retirement
- Build Good Saving Habits: "It's never too early to start saving," Robertson said.
Building good saving habits will even reward individuals with modest incomes. Since income levels and financial status can improve, having good habits already established will make saving even easier, not to mention there will be more money saved in the long run.
- Know Retirement Needs: Retirement isn't cheap -- experts estimate that professionals will need between 70 and 90 percent of their pre-retirement income for retirement.
Pre-retirement Income is the amount a worker makes before retirement. For example, if an individual earns $70,000 per year, his or her retirement savings, 401(k), and Social Security benefits will need to add up to approximately $49,000 to $63,000 per year.
- Employment Benefits and Retirement Plans: If your company offers a 401(k), or similar, retirement plan, consider enrolling and contributing as much as possible. Many companies match at least a portion of contributions, and your taxes will be lower. Those benefits combined with compound interest can help you accumulate strong retirement funds.
If you plan on changing jobs, check to see what happens to a pension or 401(k) plan, and research how long you must be enrolled before having access to the funds.
- Open an IRA: Individual Retirement Accounts are an excellent way to build towards retirement. Individuals can contribute $5,500 yearly (more, if more than 50 years old). If you have questions about IRAs, ask about them at your financial institution, or take a look at the myRA account, a retirement account created by the U.S. Department of the Treasury.
Saving $5,500 yearly, for a total of $192,500, over 35 years, and with 7 percent earned yearly, you would end up with $760,303 total.
- Don’t Touch Retirement Savings: Retirement may seem far away, but accessing retirement funds should be a last resort. Individuals accessing their funds before retirement usually owe a penalty and have to pay taxes, cutting even more into the loss of retirement savings.
Save early and often for retirement, and you and your family will be rewarded.
"The earlier you begin to plan and fund your retirement, the sooner and more likely you will meet your retirement goals," Robertson said.
This story was written for our sponsor, North Carolina Department of Public Instruction.