At first, the answer to “when to start saving for retirement” seems simple. The sooner someone starts saving, the more that person will have when it is time to stop working. For most people, this means “immediately.” Life, however, is rarely as simple as that.
When Is It a Bad Idea to Save for Retirement?
The worst time to save is when a person has high-interest debt. The interest charges from the debt are higher than the interest to be gained from saving. Ultimately, this means the person is losing money by saving money. Therefore, high-interest debt should be paid off before starting a saving plan.
It is also a wise decision to delay retirement savings if one’s short-term savings are low or nonexistent. Everyone should have enough easily-accessible savings to cover six months or more of unemployment. This should be prioritized over long-term plans.
When Is It a Good Idea to Put Money into Retirement Savings?
Any time other than the above circumstances are not present is a good time to save for retirement. There are times that it seems impossible to save, but it is always possible to put money away, if only a little. Teenagers with part-time jobs can put away $10 or $20 from each paycheck to get started and build from there. With compounding interest and the passage of time, even a small seed can turn into a large fund by age 65. The most logical course of action is to save more when possible, over time. When people get higher-paying jobs, they should increase their savings to match.
What Are Some Popular Retirement Savings Options?
IRAs, or Individual Retirement Accounts, are some of the most popular choices for retirement savings, another being the 401(k) plan. One of the reasons for the popularity of certain IRAs is that they are tax-deferred. That means no taxes are paid on the money until it is finally withdrawn. The same is true for 401(k) plans.
At many businesses, the company itself will offer one or more of these plans for employee participation. This makes it easy to save – just have the company deduct a specified amount from each check. Some companies will contribute their own funds to match employee contributions, and this makes such plans even more enticing. Because of this, people who work at these businesses are often planning for retirement with an IRA.
One thing to remember: IRAs have yearly contribution caps. Those who want to save more will need to add other investments. Stocks and bonds are popular choices thanks to their potential for good returns and the ability to adjust the amount of risk in the portfolio.