The following is a guest post.
Preparing for retirement is one of the trickiest parts of managing your money. Retiring with enough savings to live a few decades longer means saving up a lot of money. But it’s hard to balance that with maintaining a high quality of life right now.
In addition, retirement can feel really far off in the future. There may always seem like there’s more time to save later, but oftentimes saving and growing investments can be more difficult as years go by.
1. Start saving now
The simplest way to get going today on saving for retirement is just to start. Don’t worry about sorting out all the details right away. You can’t invest money until you have money saved to invest.
Create a separate savings account to place you investment funds. Work to save a portion of each paycheck to put into this account. A common benchmark is to save 10%, but some save 50% or more of their paycheck. The more aggressive you are about saving, the earlier you can return.
2. Invest early to let your money grow
The biggest reason you need to invest early: your investments need time to grow.
The power of compounding returns is a big factor in how much you’ll have saved by the time you reach retirement age. Starting late means losing out on years when your investments earn an average of 8% per year.
Because of this, investment something at the earliest possible age is often as important as investing at all.
3. Open an investment account
Once you have savings to invest, you’ll need somewhere to put it. That’s where you need to open an investment account.
This isn’t as hard as it sounds. There are many options now for everyday investors. These options are often free to open an account as long as you have a minimum investment. Typically there are various fees after that for any trades that you make.
Investment accounts can be linked directly to your bank account for easy access to your money.
Once you open an investment account, consider adding a traditional or Roth IRA account. These special accounts allow for tax benefits, either now or in the future after you investments are allowed to grow. Contributions are capped each year, and once the window to contribute to the account for the year closes, you’re out of luck.
To find out more about opening an account and planning your retirement, check out www.standardlife.ca.
4. Use easier investment options
Many would-be-investors are scared off by the thought of having to pick stocks. For the average investor, it’s not necessary to buy any stocks at all. Instead, it often makes sense to stick with funds that are groups of stocks. These funds are managed by a professional portfolio manager or by a computer according to a stock index.
Look for investment options that have low fees and can be held for years with little to no adjustment. Consider life cycle funds, which balance risk based on a set retirement age.