Welcome to this week’s edition of our Tuesday Top 5, Econ4U’s weekly tips post to help you manage your money in five easy steps.
Making retirement saving a priority is the recognition that it’s easier to go without now (when you’re young and able-bodied) than at the end of your life when your options are fewer. Unfortunately, recent surveys suggest that 57 percent of Americans feel they are behind on their retirement savings. But it’s never too late to turn that ship around.
- Learn to delay gratification. Almost any budget has room to trim expenses. Are you paying for a convenient but unnecessary data plan on your smartphone? Getting your money’s worth from your gym membership? Spending a lot on books and music downloads instead of borrowing from the library? All of that adds up to a lot of money spent in the long run — you have to decide whether it’s all worth it.
- Start small but start early. The younger you are when you open your first retirement account, the better off you’ll be. If you start your retirement fund when you’re 25, your contributions have a full 40 years to grow. If you put $100 into your account every week, with a modest 6 percent return in the stock market you’ll end up with about $867,000 at retirement. Not bad, considering you’ll only have deposited $208,000 of your earnings.
- Don’t count on a pension. Just because you’re a member of a public employee union doesn’t mean you don’t have to save for retirement. Data published by Barron’s show that eight states have enough money to cover only two-thirds of their pension liabilities, and thirteen more are only 80 percent funded. That means millions of Americans will not receive what their unions have promised them. Even non-unionized companies have bankrupted their pension plans in the unstable economy. Take responsibility for your own future and open an IRA right away.
- Increase saving by 1 percent. It isn’t such a big increase that your monthly budget will be significantly affected, but over time the magic of compound interest will make your savings grow noticeably faster.
- Play catch up. Even if you’re no spring chicken, you still have time to grow a decent nest egg. Experts suggest a baseline savings rate of 6 percent of your gross salary — and build from there as soon as you are able. And once you’re over age 50, the IRS raises your 401(k) and IRA contribution limits, so you can save even more tax-free.
