When you think about your retirement, what sort of things pop into your head? Perhaps you want to volunteer, work part-time, quit work all together and roam the world, spend time with your family and friends. I am here to tell you that whatever you are planning to do in retirement is going to cost money. Are you saving up for that cost?
My grandparents did not save for retirement. They spent their lives squeaking by with four children, a stay-at-home mother and wife and a father who worked in construction. Now that they have reached their golden age, they do a lot of sitting. I am not kidding—they spend most of their days sitting at home, watching television (no cable, but my grandmother loves to rent movies), and passing the time. They are living on social security, and that is barely enough to pay their bills each month, let alone big expenses to maintain their home, such as this past year when they needed to replace their sewage piping. At the end of the year it is a struggle to get the money together for their property taxes (fortunately they paid off their mortgage before reaching retirement), as well as income taxes on their social security income from the previous year. Sometimes they have to ask their children for help, after doing without any extras or what you or I might think of as necessity. They are by no means poor, but they are almost purely in survival mode.
I am using my grandparents as an example because I think they would encourage me to do so. A few times a year, my grandmother always reminds me to ‘save for retirement’ with a knowing look in her eyes. I’ve taken her advice.
In 2006 I began working full-time and contributing regularly to a Roth IRA. This is money that will grow over the next 40 years of my life, and that I can withdraw from my account tax-free when I retire. I chose to do this instead of the traditional IRA, where you get the tax benefits now in the form of tax deductions, because I know I can afford it today. Who knows what situation I will be in when I am older. My IRA is with Vanguard, and I highly recommend their target funds as they are simple, diversified, and have low costs. I also get paid dividends once per year, which I have chosen to automatically be used to purchase more stock into the Vanguard Target plan that I own.
No matter how poorly you are doing right now, I believe there is always a way to stash money away for the future. In fact, depending upon certain qualifications, you may be able to use the Saver’s Tax Credit at the end of the year and receive tax money back just for contributing to a retirement plan. Check out this chart and read this article to see if you qualify.
Does your company having a matching 401(K) plan? If so, it is like you are getting a bonus at work. Each month, make sure to contribute the full amount of what your company will match in order to take advantage of this great benefit.
So how much do you have to invest in your retirement dreams? $20 per month? $100? Starting with anything is better than not starting at all. Some funds have minimums for contributions (for example, the minimum amount of money I can invest in my Target Fund is $100). If there is a minimum that you cannot meet, then open a savings account and deposit the money into there until it accumulates to where you can contribute to your retirement account. A great online savings account that generally beats the competition in interest rates is ING Direct.
It doesn’t matter what you would like to do in your retirement, but I am certain that sitting at home and watching television because you have little income to afford extras is not it. Start saving today.