How to Start a Retirement Plan
Updated on Jan 01 2019
Starting a retirement plan can sound intimidating, and may even seem unrealistic given current budgetary constraints. But, the truth is that planning for retirement is essential to the financial health of your family - and it’s not too late to start. Learn key steps on how to set up a qualified retirement plan.
Time is of the essence when it comes to starting a retirement plan. The sooner you get started, even if you are in your 40s or 50s, the more time you’ll have to accumulate compound interest for your retirement income. Learn about the importance of financially preparing for your future and how a fiduciary financial advisor can help you start an effective savings plan.
Ensuring Financial Success in Retirement
It’s no secret that Americans are lagging in retirement planning. A Spring 2018 report from Bankrate, using data from the Federal Reserve, found that Americans between the ages of 55 and 64 who have retirement savings only have a median of $120,000 saved - only 12 percent of the $1 million recommended by experts. The survey also found that nearly 20 percent of Americans are not contributing anything to savings, 40 percent were saving less than 10 percent and only 27 percent were saving 11 percent of more of their income.
Bankrate senior economic analyst Mark Hamrick warns, “With a steady, significant share of the working population saving nothing or relatively little, it’s virtually guaranteed they’ll be unable to afford a modest emergency expense or finance retirement. That amounts to a financial fail.”
If you have been wondering how to start a retirement plan, here are five key steps to help you get started.
5 Steps to Plan for Retirement Now
The good news is that even if you are among the majority of Americans failing to save enough for retirement is that it’s not too late. You can change your habits and take a proactive approach to retirement savings now. Here’s how to set up a qualified retirement plan today.
1. Contact a fiduciary financial advisor.
A fiduciary financial advisor is legally and ethically bound to put your interests above their own, even if that is in conflict with his or her own personal interests. Hiring an expert is the first (and most crucial) step in retirement planning. A trusted financial advisor will be able to educate and inform you about financial marketplace opportunities and start your planning off on the right foot.
2. Prioritize personal savings.
The general recommendation is that you save 10 percent - 15 percent of your annual income for retirement, but if you start later in life, that may not be enough. Start by trying to save 20 percent of each paycheck. You may want to set up a separate savings account and have your savings automatically deposited so that you barely notice it’s missing. Put saving yourself first - even above saving for your children’s college tuition, weddings, and other expenses. It’s not selfish - it’s prioritizing.
3. Cut down on major costs and minimize frivolous spending.
Think through the major expenses in your life and how you may be able to minimize them. Can you downsize your home? Can you hang on to your car for a few more years? Maybe this year, your vacation is a more budget-friendly road trip. As you do that, evaluate your more minor expenses. The Financial Mentor estimates that a $5 latte purchased at 40 can compound to over $1,000 by the time you turn 80 in money that could have gone towards retirement. Attempt to spend less on low-priority items, like subscriptions, shopping and dining out.
4. Take advantage of retirement accounts.
Don’t miss out employer-sponsored retirement accounts. Put as much as you can into your retirement accounts and don’t miss an opportunity to have your contributions matched by your employer. Also, consider putting raises, bonuses, cash gifts and any other unexpected income into your retirement account.
5. Plan your future.
No matter your age now, take the time to set down with a financial advisor and discuss your goals for retirement. More than just choosing investment accounts, let your financial advisor help you set up a qualified retirement plan to help you meet those goals. A financial advisor can help you invest aggressively and wisely, maximizing your returns and keeping you on track.
It’s not too late to start planning for your future. These 5 steps can help you get started on how to start a retirement plan. With the help of a fiduciary financial planner, you can map out a retirement savings plan that helps you meet goals now - and later.
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