When Should You Start Saving for Retirement?
Welcome back to another post in my how to invest in stocks series. The issue up for discussion today is when to start saving for retirement. Right up front I want to say that the issue of saving for retirement looks different for everyone as we all have our own unique situations and that is ok. If your plan looks different than others, that is fine as someone else’s investing plan will likely not be a good fit for you.
That said, today’s post springs from countless conversations I’ve had with retail investors that were often struggling to make headway with their retirement planning. There were various reasons for this, but often times their challenges led back to a delay in saving for retirement. Added to that, there can be various issues related to investing for retirement – such as how to start out if you’re in your 20’s, investing while you have debt or if you waited until you’re older to invest. Those are all topics I plan on covering in upcoming posts. If you want to catch up on previous posts in this new investing series, click on the links below:
- How to Invest in Stocks When You Don’t Know Where to Start
- Is Investing in the Stock Market Really That Easy?
Start Saving for Retirement as soon as you Can
When should you start saving for retirement – now! Boiled down, that is ultimately the message and one that many need to take to heart. Unfortunately, life is often hectic and hard, which makes it easy to fall into the mindset of putting off retirement savings for what can easily add up to years at a time. To be more realistic, saving for retirement should happen as soon as you’re able to make it happen. For many that are fortunate enough to get a job once they graduate from college it can be as early as then. If your employer offers you a 401k plan, with a corresponding 401k match it that is probably the best opportunity to start saving for retirement and why shouldn’t it be – it’s free money after all.
I know there is an argument that if finances are tight that it’s good to bypass putting money into a 401k account. I would disagree with that on many levels, but ultimately falling back to not wanting to give up on the offer of free money for my retirement savings. Unfortunately not all of us are offered a 401k plan or a match with our jobs, which can make saving for retirement, in the beginning, a little more difficult. If you’re in that situation, then generally the best option is to open a retirement account with any of the major online brokerages that are out there and start investing in some index funds or solid dividend paying stocks.
That said, please do not allow your lack of funds hold you back from saving for retirement. Even if you start out with something as small as $50 per month, start with that. Start putting that money in an IRA and allow time to do its thing and you’ll not only begin to develop a discipline of investing in the stock market, but you’ll also be actively involved in it. As someone who spoke with people on a regular basis who used this basis as a reasoning, please do not let that be you.
Retirement Planning is Just That…Planning
It can be difficult for many to start saving for retirement as it seems so far away. If you’re just out of college and investing that could mean as much as four or five decades – that is a lot of time. Whether you plan on pursuing the traditional retirement model, or something more entrepreneurial in nature, you’re best served by having an investment plan for your retirement savings. That does not simply mean throwing your money into X number of the funds offered in your 401k plan, but taking active management of it and finding what works best for you. It means checking in on your investments on some sort of regular basis and making adjustments when necessary – essentially rebalancing your portfolio as the situation warrants it.
There is no set interval for this; just do whatever works best for you as long as you’re doing it on an annual basis in the least. It is also important to keep in mind that your plan and needs will change as your life changes and your risk tolerance changes.
For example, along with saving money for your retirement, you need to consider devising an estate plan as well as a term life insurance policy that will pay out a death benefit to cover your family’s living expenses. Again, instead of just buying any policy and throwing money at monthly premiums, households must review and compare different types of life insurance policies to find the right one. All of these points go back to the main point that saving for retirement is not really a “set it and forget it” activity, but something that requires a certain level of planning and regular management.
What do you Want to Pass on?
As you’re just starting out investing in the stock market, with an eye towards retirement, this can be one of the most difficult things to keep in mind. I have always encouraged investors to look at what they’re wanting to pass on as they’re retirement planning. Speaking personally, I want us to be able to pass money on to our children. I want us to be able to help start a legacy for them and their children. Thus, we have to invest accordingly. Of course, this impacts other things beyond investing, such as frugal lifestyle choices and the like, but investing in the stock market plays a major role in that.
Beyond wanting to be able to provide for family members or friends, you can also think of any charities/organizations you want to be able to give to with your retirement planning. Doing so opens up a number of different possibilities and taken with passing wealth on to family members can really make saving for retirement more tangible for many. If you’re just beginning to think about retirement planning, considering what type of legacy you want to pass on can be a great way to formulate how you might want to be saving for retirement.
Saving for Retirement is a Marathon, Not a Sprint
If you’re struggling with when to start investing for retirement, please remember that time can be your greatest ally, but it can also be your worst enemy. Ultimately, so much of retirement planning comes down to time. While your retirement age may seem to be in the far off distance, you’ll do yourself no favors by putting off saving for your retirement years. I think of it in this way, my wife is wanting to someday compete in a marathon. While I think she’s just a bit crazy to do that to herself, she can’t very well go out and run 26 miles at the drop of a hat. She needs to plan and prepare for weeks and months leading up to it so she can prepare her body to go through that stress.
Saving for retirement is very much like that as we don’t, generally, just wake up one day and have a fully funded retirement portfolio. It takes years of hard work and management to create a healthy retirement portfolio and bring it to the point that it’ll provide for those retirement years. With that in mind, please enter into your retirement planning with that mindset and you’ll be well served in the long run.
When did you start saving for retirement? Is there anything you wish that you would’ve done differently?
Photo courtesy of: Tax Credits