Everyday life gives us lots of reasons to put off saving for retirement or not saving enough. Mortgage payments, credit card debt—the list goes on. But if you don’t “pay yourself first,” you could shortchange your future.
STEPS TO MAKE SAVING EASIER 1 Take advantage of the plan. Participate in your workplace retirement savings plan. It really is one of the best and most convenient ways to save. 2 Check for employer contributions. Take full advantage of any employer contributions to your plan. They count toward that 15% savings goal. 3 Increase your savings annually. Put a reminder on your calendar to increase your savings rate once every year by 2% (or more). Some plans will let you do this automatically. It’s a great way to boost your savings. HOW SAVING SAVES ON TAXES Saving and investing through your plan can lower your current tax bill. Typically, the amount you save in the plan is considered “before tax,” meaning that it doesn’t count toward your current annual taxable income. PATIENCE PAYS While there are many things in life you can’t control, saving for retirement is something you can. Instead of thinking of it as an expense, consider it to be an investment in your future lifestyle.
We believe that most retirees need to replace 75% of their preretirement income to maintain their lifestyle through the retirement years. That includes Social Security and possibly a pension, but the rest will have to come from retirement savings and other assets. We suggest that retirement savers should save at least 15% of their income each year. If you’ve put off saving for retirement for a while, you may need to save even more. If setting aside 15% of your pay isn’t practical right now, start with 6% and increase the amount by 2% each year. To free up more money for saving, try these tactics: Create an emergency reserve fund over one to two years to equal about 20% of your salary or more. Pay down high-interest debts such as credit card balances over the next three years. Start college savings only after you’re well funded for retirement. WHAT YOU CAN DO NOW Just log in to your account at rps.troweprice.com and select Tools & Calculators under the Plan & Learn tab.
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