It can be easy to forget about planning for retirement once you start your career and attempt to live on your own in your 20s or 30s. Unfortunately, many people fail to plan for their retirement until it’s too late, which can make it difficult to exit the workforce. To prepare for the golden years and secure your future, there are a few important steps to take when you’re young.
1. Open a 401(k) Account
You may not want to have any more money deducted from each paycheck after you pay taxes, but it’s important to plan for your retirement by opening a 401(k) account. The contributions that you make will likely be matched by your employer, which is free money that can allow you to retire sooner. Attempt to save at least 10 percent of your gross income before gradually increasing the amount of money that you contribute as you begin to earn more money.
2. Create a Retirement Budget
You’ll need to determine the amount of money that you need to save for your retirement to ensure that you set specific goals that can be achieved. The budget should include factoring in your income and any debt that you’ve accumulated. It’s also important to consider inflation, which will require that you save more money with the cost of living increasing in future years. Consider how comfortable you want to live and the lifestyle that you’ll enjoy in your golden years to determine how much you’ll need to survive.
3. Diversify Your Portfolio
Investing is the key to growing your retirement savings at a steady rate to ensure that you can save a significant amount of money over time. Diversifying your portfolio will reduce the risk of loss that can occur, especially in poor economic conditions that can develop from time to time. Invest in both IRA and Roth accounts, making it a point to avoid withdrawing the money due to tax penalties that you’ll have to pay, which is often an average of 25 percent of the amount that you withdraw. You’ll need to monitor your investments every few months and determine if any changes need to be made.
It’s also important to invest in companies that you understand and support. You should also avoid investing in brands that are going to cost you a significant amount of money in fees.
4. Reduce Your Expenses
Reducing your monthly expenses is a viable way of preparing for retirement by having more money to put towards your golden years. There are a number of ways that you can adjust your lifestyle due to simple changes that can allow you to save hundreds of extra dollars each month. Consider cutting coupons with newspaper inserts that will help you to avoid paying full price for groceries or household items. You can also downsize your car or home to reduce your monthly payments.
Make it a point to make your own lunch or dinner to avoid eating out and spending more on food. You can also shop at secondhand stores for furniture or clothing item throughout the year.
Eliminating your debt is crucial to having financial freedom and saving money on interest rates. Purchase a used vehicle to avoid taking on an auto loan and set a goal of when you can pay off your mortgage. You can also obtain affordable car insurance that doesn’t cut into your budget. Saving an average of $1,000 for an emergency fund will also allow you to avoid acquiring credit card debt when you have unexpected car repairs or medical bills during each year.
5. Plan for Medical Costs
Many people make the mistake of failing to save extra money for the medical coverage that they’ll need to pay for once they’re retired. It’s important to avoid relying on Medicare, which doesn’t cover all procedures, surgeries, or prescriptions that you may need.