If you could look into your future, how would you see yourself at age 70 and retired? Would you be traveling, spending time with grandchildren, taking up hobbies, or working part time?
Whatever plans you have, you will need some kind of income to support you and your activities throughout your retirement years. Otherwise, you may be living on very limited income with little or no money to pay for your basic needs. To achieve retirement and reach your goals, you should make a plan and start saving in your 20s. Retirement planning doesn't have to be complicated; the key is to design a plan that works for you. Click the rows below to understand what is involved in retirement planning and then answer the questions:
Create retirement goals. Decide what age you would like to retire and the amount of income you need to live. (There are retirement calculators available online to help with this step.) The amount of money needed to live comfortably will depend on your personal needs and standard of living. Experts say if you want to collect $40,000 per year for 25 years of retirement, you will need $1 million saved.
Determine how much to save for retirement and start early. Experts recommend putting away at least 15% of your income each year toward a retirement plan. By starting early, you take advantage of compound interest, which you learned is earning interest on interest, allowing your money to grow faster over time.
Decide how you will save and invest for retirement through a savings plan. There are many retirement savings plans available through employers and banks such as 401ks, IRAs, and pensions.
Check and update your plan yearly—especially after a major life event such as marriage, divorce, or a job change. As your circumstances change, you may need to increase your contributions or change investments.
Tyler is in his 20s and just started the first job of his career. He feels his priority should be paying off college debt and saving for a car. His friends recommend he also start a retirement plan, but he doesn't think that's as important now.
Question
What advice would you give Tyler about starting a retirement plan?
It is a good idea to start a retirement plan early so that you can grow your money over time by taking advantage of compound interest. There are many plans you can choose from through a bank or your employer to make saving easy.
