When it comes to saving for retirement, the clock is ticking. To illustrate the value of time, let’s consider three Roth IRA investors.
Kate, Derek, and Jane all decide to open Roth IRAs to supplement their other retirement accounts. Each investor hopes to build this account to $500,000 at the time of retirement, though they are starting to save for retirement at different ages. All plan to retire at age 65 and the investors maximize their contributions each year.
By age 65, here’s how their savings could add up:
How you can best prepare for the future
If you start saving in your 20s, contributing 10-15% of your paycheck will likely allow you to meet your retirement savings goal. With every decade you delay, however, you’ll need to save a greater percentage of your paycheck.
Find additional ways to save
Here are some options for getting on the right track:
- Maximize your workplace retirement plan. For 2018, the max 401(k) contribution for employees under age 50 is $18,500. At age 50, the limit goes up to $24,000. Be sure to take advantage of any match your company offers.
- Devote funds from a windfall, such as a bonus or inheritance, to an investment account geared toward your retirement.
- Set up a taxable brokerage account to supplement your retirement savings.
- Give your saving s boost. As your income increases, up your savings rate by 1-3% each year. Before you know it, you’ll be saving a lot more than you thought you could.
- Start a Health Savings Account (if you’re able) to help cover medical expenses, both now and later in life. If you don’t use the money, you won’t lose it. An HSA stays with you.
Daniel R. DeHoek, CPA | ABV | CFP®