Your future financial security is in your hands
You need to build a significant retirement savings account.
- Income — Depending on your lifestyle choices, you may need the same income after you retire as you were earning before retirement. Where is it going to come from? Social Security may only replace about a third of your pre-retirement income. The higher your average salary, the less Social Security will replace. If you have a pension, that may be a big help, but the trend suggests fewer people will be able to depend on traditional pensions. That means your personal savings will need to make up the difference. Not having enough savings could mean delaying retirement or even going back to work.
- Lifespan — You may live a long time in retirement — perhaps 20 to 30 years, and you’ll need enough savings to produce income for your entire time horizon, whatever it ends up being.
- Unexpected expenses — If you’re fortunate to live a long and healthy life, you’ll be active, and that means you may be out spending money. As you age, you may start having health problems and you’ll want enough savings to help pay for the care you need.
Add to this scenario the fact that inflation will continuously make your money worth less over time and it’s clear: You need to build a significant retirement savings account.
It’s about time, money and returns
The best way to build your retirement account is to start saving and investing early in your career. But even if you were unable to save much when you were young, the old saying, “better late than never” definitely applies. It’s never too late to start saving; you may just have to save more to catch up.
There are three main factors that affect the amount of money you may end up with when you retire:
- Time — When you invest in tax-deferred retirement plans like Individual Retirement Accounts (IRAs) and 401(k)s, time can be your friend. The longer your money stays invested, the more compounding has a chance to work.
- Contributions — The more money you contribute to your account, and the more your employer adds in matching contributions, the more dollars you have to potentially compound. Try to gradually increase contributions to your employer plan and IRAs over time.
- Investment returns — Investments can go up and down in value over time, and you can’t really control that. But by picking a mix of investments that aligns with your time horizon and risk tolerance, and with proper diversification, you can help manage the delicate balance between risk and return.
Save early, save often
It’s important to stay positive, engaged and in control. A solid plan, a commitment to save early, discipline, and time, all can help you reach your retirement goals and live the lifestyle you want. It’s in your hands. You can make it happen.
Strategies such as increasing contributions and diversification do not guarantee positive investment results.