The new year is a great time to prepare for future financial security, even for young workers whose retirement is still decades away. In fact, the sooner you start, the better.
Now is the perfect time to develop new habits for retirement savings and other long-term goals, even for entry-level workers just starting their careers. And by adopting these habits early and often sticking to them, you can build small fortunes, even more than $1 million.
For example, consider a 25-year-old worker who starts a new job and earns a salary of $50,000. If she contributes her $400 a month (or her 10% of her salary) to a retirement account, assuming her interest rate is 6%, until age 67 (full retirement age according to the Social Security Administration) She could potentially save more than $1.1 million. She delivers returns and consistent contributions. And even if that same person were only able to contribute half that, or $200 a month, assuming the same factors, by age 67 she would have more than $500,000 saved for her future. Sho.
Changing any of the factors will, of course, affect the expected outcomes in the decades leading up to retirement. In many cases, savers may find they need to adjust their contribution amounts. Some years you save more, some years you save less. Market volatility also affects portfolio performance from year to year.
Still, there are some strategies young Americans can adopt to prepare for a more comfortable retirement. He shares some of the tasks you should try in 2024 to achieve success.
Meet your employer match
Financial advisors typically suggest saving 10% to 15% of an employee’s salary for long-term retirement goals, but that’s not always feasible. If not, start where you can. Employees of companies that offer employer-matched retirement accounts should aim to contribute at least up to the matching amount to take advantage of that extra cash. If that’s not possible, organize meetings around short-term goals. My priority is to contribute as much as I can first and increase my contribution in time for the game as soon as possible (and eventually surpass that).
One strategy for setting financial and non-financial goals alike is to use SMART goals. SMART goals represent goals that are specific, measurable, achievable, relevant, and time-bound. Using this approach may make it easier to achieve goals such as increasing contributions to a retirement plan.
Automate your savings
While workers can automate savings in 401(k) plans through payroll deductions, savers can use the same tactics outside of employer-sponsored retirement accounts. Try setting up automatic contributions to various savings accounts and investment accounts, such as IRAs, through your bank. If your checking, savings, or investment accounts are held with another company, many financial institutions work with you for automatic transfers.
Many retirement plans also allow employees to set up automatic increases in contributions. He can choose one time of the year to do it on that day, such as a work anniversary, birthday, holiday, or the day he would normally expect an annual raise.
Understand your asset allocation
The new year is a good time to reevaluate how your portfolio is invested: your retirement account asset allocation. Many young workers are encouraged to invest aggressively because it takes decades for their money to grow and recover from market downturns. Regardless of the strategy an employee chooses, check their retirement plans periodically (semi-annually, quarterly, etc.) to ensure that the portfolio is still properly invested or if it has changed due to market movements. It is important to check that you have not.
Open a Roth account
Roth accounts are invested with after-tax dollars, as opposed to traditional IRAs and 401(k) plans that use pre-tax contributions. Roth accounts can be a powerful tool for members of younger generations, who are more likely to be in lower tax brackets. Roth accounts essentially provide a tax discount if you expect to pay higher taxes in the future. Investors can prepay taxes on contributions and withdraw funds later without being charged taxes.
Roth accounts have specific distribution rules. For example, to avoid paying taxes and penalties on withdrawals, an investor must have the account open for five years and be 59 and a half years old. However, the principal (contributed by the investor), rather than the profit, is always available for distribution without taxes or penalties. There are exceptions, such as up to $10,000 from a Roth IRA for a first-time home purchase, which may subject investors to taxes but no penalty.
