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In today’s uncertain times, it isn’t enough to plan on Social Security covering your retirement. The debt that the government took on in the recent financial bailout will strain the federal budget for many years to come, making cutbacks in Social Security and Medicare even more likely. Your retirement security rests in your own hands now more than ever.
It’s never too late to start saving for retirement, but the sooner you can start socking money away the better off you’ll be. Use time and the potential of compound interest to your advantage and begin saving for retirement as early as you can.
Think about this: Let’s assume you can save $500 per month for retirement and will earn approximately 7%. If you start at age 35, you’ll end up with about $613,000 at age 65. If you start earlier, at age 25, you’ll end up with well over twice as much – around $1,320,000.
One of the easiest ways to save is to have money put into a 401(k), 403(b), or SEP account through your employer. Money is taken out of your salary before taxes, so the funds go into the account tax-deferred. Additionally, your employer will most likely match your contributions up to a certain percentage. Automatic deductions make it easy, so there’s really no reason not to take advantage of such plans. If your employer doesn’t offer a retirement program or you’d like to supplement what you already have, consider an IRA.
How much you’ll need in retirement largely depends on the lifestyle you wish to lead. As a general rule of thumb, financial experts recommend saving enough to replace at least 70 percent of your pre-retirement income for retirement. For a household with a $100,000 annual income, that would be $70,000. However, if you tend to ramp up activities like eating out and traveling during your retirement like so many couples do – you’ll need to plan on having more.
Assignment: Calculate the amount you will need for retirement. Here's a great tool to use: How Much Will I Need To Save For Retirement? - Financial Calculators from CalcXML Are you on track? If not, make saving for retirement a part of your budget today.
**I'm 20, I guess we should get started. How does this work if I'm a SAHM...? I think I'll go back to work when our son is in school.