Planning for retirement can seem like a daunting task. For many employees, retirement may feel like it is too far away to worry about now. For others, it may be too close and you feel nothing you do will make a big impact. For most of us, retirement will happen someday and it is too important not to think about.
So how do you know if you are on the right track? There are many online resources or tools that can help you determine how much you need at retirement. TargetCW’s 401k provider Nationwide has a wonderful tool here http://www.nationwide.com/investment-tools.jsp?NWOSS=401k+planner&NWOSSPos=1.
You may have also heard about the 4% rule. The 4% rule is commonly used and is a very quick calculation of the funds you may need at retirement to last you 30 years in retirement. The rule is that you will need to withdrawl 4% of your retirement fund each year to avoid outliving your money. So you can decide what you want that 4% to be and multiple that by 25 to get the total assets needed. For example, if your 4% withdrawl was $20,000 per year, you would need $500,000 in savings at time of retirement.
Now don’t get too depressed. There are other options to consider like social security, spousal savings or pension, and selling anything of value (like downsizing your house). You may also choose to redefine retirement. 65 isn’t what it used to be. You may be more than able to continue working full time or part time, to supplement your income, way past 65.
So how do you get started? I would not question too much when to start saving, but how. The when is always now- The earlier the better. Most employers offer a 401k plan. You may also consider a Roth IRA. The main difference between a 401k and Roth is taxation and limits. 401k contributions are done through pre-tax payroll deductions up to the IRS limit of $17,000 per year. Roth IRA contributions are done using after tax money and are generally set up outside of work, up to the IRS limit of $5,000 per year.
Start Small and don’t touch it.. TargetCW allows employees to contribute weekly to their 401k with as little as $10 per week, up to 90% of their paychecks. Remember, 401ks are long term savings. Once the money is in the account, you cannot easily take it back out. Start small with an amount you know you can afford, and increase 1% every few months or with every raise. Most importantly keep saving. Most of us will change jobs, experience salary changes, or lifestyle changes, during our lifetime, that may make us throw in the retirement savings towel. Don’t give up. Instead consider saving less or cutting back elsewhere.
Don’t forget to think about risk. When you are starting out with retirement savings, you don’t want to lose everything you put in, so consider conservative funds, such as bonds or cash. Don’t forget to diversify with a little large or small cap stocks as well as international stocks.
Using a financial advisor is a great resource to help evaluate how much to save, what funds to choose, and evaluating your total overall finances to see how to save more, and spend less. In addition to financial planning services, TargetCW also offers a free employee assistance program that provides financial counseling, tools, and articles about retirement and budgeting.
About the Author:
Hannah, our VP of Human Resources, has worked in HR for over 9 years. Hannah achieved her PHR certification in 2010. She has been a SHRM member since 2006 and LWHRA & NWHRA since 2009. She is a licensed insurance producer in Washington and California. She obtained her Bachelor’s degree in Organizational behavior from University of Missouri.