3 Points on the Spectrum of Retirement Saving
How much should you save for retirement? The correct answer is … it depends.
The specific amount of money or percentage of your salary is impossible to guess. You will find the right answer through trial by error.
Have extra money? You can add more to your accounts. Committing too much? You can decrease your contributions.
While this is not clear, there are three points on the spectrum of savings that start to answer the question of how much. Are you:
1. Not Living Within Your Means?
2. Living Within Your Means?
3. Living Comfortably Within Your Means?
Like all spectrums, you probably fall somewhere between two of these three points.
Option 1: Can’t Save Much
Approximately 38% of Americans under the age of 30 have no retirement savings.
Luckily for you, there is no minimum contribution or minimum balance requirement in your retirement account.
Your goal is to learn how to save for retirement. It is not realistic to save enough or more than enough for retirement, so do not try … yet.
Do not procrastinate on getting started.
Once you are living within your means you are much more likely to increase your retirement contributions than to remember to start saving. As you are able to live within your means, increase your retirement contributions.
Option 2: Can Save Some
Save up to the employer match if you are living within your means. You do not have an excuse to leave free money behind. You would not turn down a bonus from your employer, so why turn down the employer match?
Do not sacrifice living within your means to save for retirement. Do not contribute up to the match if you cannot afford to do so. But get as close to the match as you can within your means.
About 70% of employees under the age of 30, with an employer match available, contribute up to the employer match. So, it is not an opportunity that you must take advantage of, but it is a good idea if you can.
However, do not use the employer match as a stopping point if the opportunity is available.
Option 3: Money is no Object
This end of the spectrum is the goal for retirement savings. The IRS updates the contribution limits on retirement accounts each year. Your goal is to contribute up to the IRS maximum amount.
Investing this amount of money for a significant amount of time will give you the opportunity for the highest quality of life in your retirement.
Where Do You Land on the Spectrum?
Do you fall at or between options one, two or three on the retirement saving spectrum? Review your finances and get started on saving or increasing your retirement contributions. Then review whether you can take advantage of any free money that your employer is willing to offer you.
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