When you are just starting out in your career – and especially when you are still in school – it might seem weird to think about retirement. However, when you start saving as early as possible, you give your future the best chance at success. Every little bit helps – especially when that little bit is going to be given the chance to grow over the course of your career.
If you were planning on starting your retirement saving in your 30s, you might want to rethink that idea. By starting now, the extra 10 years or more could make a huge difference in your savings totals. As the amount you deposit gains interest, that interest gains interest and so on. This compound interest, as its called, gives you quite a boost.
If you already feel like you are struggling to get by, the last thing you want to do is put money away for retirement, but there are a few things you can do to make this saving easy.
Sign Up For Your Employer’s 401(k) – If your employer offers a 401(k), be sure you sign up for it – especially if your employer matches your deposits. You might think that you’d prefer that extra money in your pocket, but it will be most beneficial to you as your retirement savings.
Save As Much As You Can – Whether your employer offers a 401(k) or not, it’s beneficial to engage in additional saving. $20 here or there can really add up over the course of the year. Keep track of all of the ways you cut back on spending and use that cash to contribute to your IRA annually.
Roth And Roll – Going the Roth route makes a ton of sense, especially at this stage of your career. You don’t get the same tax break annually as you do with a Traditional IRA but you get to receive your funds tax-free at retirement. This is a huge deal when we’re talking hundreds of thousands of dollars. Talk with your tax advisor to see if a Roth IRA makes sense for you and deposit as much as you can annually. If you have one, it even might make sense to rollover your Traditional IRA into a Roth.
When you think about investing, you may immediately think about the stock market and high-priced possessions such as real estate (like the landlords you may have met in college who flip houses for money).
Although it may seem like you need a lot of cash to invest in anything nowadays, that’s not always the case. Different types of investments can help you accrue a healthy return on your money without the added risk or a lot of capital. And that means you can beef up your savings without those sleepless nights – good deal!
One riskless investing method you may want to consider is called CD Laddering. CDs – or Share Certificates as they are known at your credit union – are savings products that earn a higher dividend rate than regular Share Accounts. This is because you deposit your money in a Share Certificate for a set “term” (period of time). For instance, you can invest in a Share Certificate for six months, one year, three years or maybe even five years, depending on what your financial institution offers.
Here’s how laddering works: Let’s say you have $500 in your Savings Account, and you want to start earning more money. Instead of investing the entire $500 in one Certificate, you can invest in five separate Share Certificates. Purchase a 1-year, 2-year, 3-year, 4-year, and 5-year Certificate (or the terms that work for you). Each year, roll the Certificate that comes due to a new higher yield 5-year Share Certificate. By the fifth year, all of your Certificates will be receiving the highest dividend, plus you will only have to wait one year as opposed to five for a Certificate to mature. This means you’ll have access to your money faster since you can’t tap into a Certificate while it’s maturing (unless you want to pay a penalty).
If this technique sounds confusing, don’t worry – a member service representative at your credit union will be able to help you get started on the road to great returns. To learn more about investing for your future, read some of the other articles in this section, or stop by your credit union and ask us how we can help.