A Beginner’s Guide to Retirement Savings
Many people reset their financial goals in the new year. Retirement planning is part of that process and we have come up with a list to help guide the initial steps of first-time savers.
An important first step is to know when to start retirement planning. In short, it is beneficial to start planning and saving as soon as possible. The earlier you start planning, the more time your money can compound and grow. If you think you are behind, remember that it’s never too late to start. You can start small with only a couple hundred dollars a month, or significantly more if you can afford it and it makes sense with your overall plan. Regardless of the amount, It’s great to form a habit of setting aside money to save as the savings can potentially grow significantly.
Another helpful measure to take is to estimate how much money you will need to retire. This amount is related to your current income and expenses and how this will change over time.
Expert advice says to replace 70% to 90% of your annual pre-retirement income through savings and social security. If your earnings increase, consider increasing your savings as well. Keep in mind that retirement expenses can also be higher, depending on your lifestyle, travel and entertainment, and other budget items. More free time can lead to more spending.
To stay on track with your savings, you should prioritize your financial goals. While you consider this, think about the time horizon. This can be short term savings to spend, general short term savings and long term savings. It is important to balance these objectives and depending on what you wish to accomplish, there are various solutions available to you.
While seemingly straightforward, it is imperative to choose the retirement plan that works best for you. Many people have 401(k)’s or other employer plans with matching contributions. If you are a business owner, you can open your own retirement account. While many firms offer these accounts, it is important to understand what you are getting in the relationship. Stock brokers do not have the same level of responsibility as a broad based financial planner. There are also practical considerations such as on-line access to your account, fees, etc.
It is also important to select the appropriate investments in your account. Many retirement accounts provide access to a wide range of options. The first considerations should include your time horizon and risk tolerance. If you have a longer time horizon, you can afford to be more aggressive with your asset allocation, all things being equal. The risk tolerance assessment is important to ensure you can ride the waves when the market declines. Emotional selling at market lows can be detrimental to your future.
The best time to start saving for retirement is yesterday. The next best time is today. By starting today, and contributing what you can afford, you are putting your best foot forward towards saving for your future.
Registered Representatives of, and Securities and investment advisory services offered through Hornor, Townsend & Kent, LLC (HTK), Registered Investment Adviser, Member FINRA/SIPC. 187 Danbury Road, 2nd Floor, Wilton, CT 06897 (203) 966-2636. HTK is a wholly-owned subsidiary of The Penn Mutual Life Insurance Company. Prime Financial is independent of HTK, LLC. HTK does not provide legal and tax advice. Always consult a qualified tax advisor regarding your personal tax situation and a qualified legal professional for your personal estate planning situation.