Get Serious About Your Future! Retire Like a Boss!
Do I need to save for retirement? Yes. The answer is ALWAYS yes. Unless you have a rich uncle that will leave you millions of dollars – AND you are REALLY good at budgeting and managing your own money, then you should be setting at least something aside for your retirement each month in an investment fund. Personally, I prefer setting up a Roth IRA for investments. (see why below)
Topics Discussed in this article:
How much Should You Save for Retirement?
What is the difference between a Roth IRA and a Traditional IRA?
What is the difference between a Mutual Fund and an Index Fund?
Why Invest Your Money?
I guess you could always just open a savings account at your local bank and begin setting extra money aside – or stick cash in an envelope under your mattress. I don’t suggest these methods because you won’t earn any return on your investment this way. See the scenario below.
Plus, it makes its tempting when you can have access to these funds. I suggest investing in a retirement fund – meaning placing funds in the stock market and leaving them there to earn interest over time. We’re talking 20-40 years!
My husband and I started investing in our early 20’s – and even then, we could only put away roughly $50 a month. But it was $50 a month going towards our future! Every little bit helps and the sooner you develop the habit of saving, the better off you’ll be.
How much should you save for your retirement?
This is dependent on a couple of factors.
Your current age
The age you Plan to retire
How much you have saved already
What your estimated return on your investment should be (historically, this will be anywhere from 7-11% return on your investment for the average investor)
Here is a Dave Ramsey Retirement Calculator where you can you input the above numbers and begin to play with these different amounts.
Remember that as your income increases over the years, the more you will be able to invest. So don’t worry if you’re numbers look low right now – you can always contribute more as your income increases.
Ideally, you will put away 15% of your total income into a retirement fund. Most employers have a retirement program – so know what your employer offers and ask questions!
Once you’ve played around with the numbers on the calculator, ask yourself, “How much do I need a year to live comfortably?” This answer will vary person to person.
Just for fun, let’s input the following numbers into the investment calculator. If you were 25 years of age and you had saved up $10,000 towards your retirement and you contributed $300 a month until you were 67 – let’s be safe and say a 7% return…. here are the results.
Doing a little math, you would have contributed $161,200 of your own money and your investment would yield over a million dollars. That’s assuming you NEVER add more into the account as your income ideally increases over the years.
THAT is the reason I suggest investing.
Now, take that total and divide by 20 (this is assuming you live until you’re 97 years old.) That will be the amount of money you would receive each year is you divided up your funds evenly over the course of your retirement.
If we keep with the above scenario, you would retire making with approximately $53,000 a year.
To find out how much you should save for retirement, just play with the numbers until you’ve found one that would yield a nice retirement for yourself. Then, you can set your goals on how much you should start saving. Even if you can’t afford to save as much as you’d like right now, just starting is the important part!
Setting Up an IRA
You have options when it comes to setting up a retirement fund. I prefer a ROTH IRA account, but you can use the traditional IRA as well.
There are differences between Roth IRAs and Traditional IRAs. See the chart below to compare the differences between the two.
There are some other terms you might come across when it comes to investing. There are multiple funds to choose from when investing some sort of money. One common question that is asked is what is the difference between a Mutual Fund and an Index Fund.
Here is an easy explanation.
Think of these as your ‘buffet.’ You can pick and choose which stocks to buy into. These accounts are actively managed – meaning your investment provider should be watching these to make sure they are placing your money in the stocks that will lead to a higher return on your investment. This is why it is extremely important to find a provider you trust!
Mutual funds have a lower buy in rate, however, the fees you pay your investor will be higher (generally 1-1.5% of your earnings). But remember, your investor wants to make money too – which is why they actively manage these accounts closely!
Mutual Funds also have more volatility – meaning they are more unpredictable. But the average return of your investment is roughly 7%.
***Some people will argue that the average return of your investment is more like 11-12% percent. Which, historically, that is the correct average. However, that includes the 80’s and 90’s where the stock market jumped and the average investment THOSE years were roughly 20%. Which is why the average over time is estimated around 11-12%. But if you only consider the past 10 years, the average is roughly 7%.
If mutual funds are you ‘buffet,’ then Index funds are more like your ‘summer camp lunch.’ Everyone gets the same thing and a little bit of everything. These accounts are passively managed because they are less volatile and more stable than mutual funds.
Think of it this way. An index fund can include a fortune 500 company. If one branch of that company goes under – there are still 499 that will carry your investment. Because of this, there is a higher buy in – generally $25,000 to begin investing in Index Funds. Exceptions can be made and this number can vary depending on your investor.
But, while the buy in rates are generally higher, the investor fees are lower.
If you don’t understand the stock market, I highly suggest hiring someone to do your investments for you. Click HERE to find some investors near you today and compare rates.
What We Use
We are 100% on a Dave Ramsey Retirement Plan. We use companies and investors endorsed by Ramsey (as linked above) because of his extensive knowledge of the stock market and his abilities to teach someone to plan, save, and setting you up for a great retirement – one that won’t have you depending on the government, or other people in your elderly years.
If you don’t want to have to take on a job after you retire – even though I love my Wal-Mart greeters – you need to be setting SOMETHING aside for your retirement. It’s about living a frugal life now, so you can enjoy the freedom later!
Do you need some ways to increase your income? You can create a website online and learn how to make money in the long term to go towards your investments.
Why not start an online business now – you can receive FREE basic training on how to set up your website and how to start making a residual income online with a website.
Are you looking for a side hustle? You can also check out THIS POST on how to make money doing odd jobs by posting your skills on websites like Craigslist and Facebook.
Or, simply start saving money with these 50 ideas! Sign up to receive a print out of all 50 ways you can save money. Hang it on your fridge and check them off the list as you save money each month towards YOUR future!
How important is saving for retirement to you? Let me know in the comments below! Comment and tell me what you want YOUR future to look like! What are your goals?