Saving for a car, house, or vacation are what comes to mind with most 30-year-old couples when you mention saving. But savvy couples also have retirement in their sights and are well on their way to financing that dream as well. In fact, by the age of 30, you should have saved one-half to one year’s salary toward retirement, according to many experts.
How Much Should You Save?
At this point, your target should be putting at least 10 percent of your income towards retirement. If you can’t afford to save 10 percent now, start small and work up. Save 2 to 3 percent initially and add another percentage point every few months to get used to the difference in your paycheck. Eventually you want to build up to 15 percent, including any funds added by an employer, according to Fidelity Investments.
Starting to save for retirement early is important since it gives the money time to grow and the interest to compound. Fidelity recommends adding another year’s worth of salary to your savings every five years (one times salary at 35, two times salary at 40, three at 45, and so on). You don’t need to save 20 percent a year to make this happen. Your nest egg grows exponentially as earnings grow on top of earnings.
Taking Advantage of Work Plans
If you are lucky, you both work for a company that offers a retirement plan, like a 401(k), which helps you save through payroll deductions. This puts your saving effort on autopilot. If your company offers a match, it’s an easy way to grow your money quickly. For example, if your company match is $.50 on each $1 you put in, you instantly get a 50-percent boost to your savings. If you don’t take advantage and save as much as they'll match, you are leaving part of your compensation that your employer is paying you in their hands.
Don’t Touch the Money
Most company 401(k) plans allow participants to take out loans from the plan. Usually, the money is paid back through payroll deductions, and the interest charged also goes into your account. This is better than incurring debt elsewhere with high interest rates paid to someone else. However, taking money from your account could hurt you if the market goes up significantly while you're paying it back.
If you leave a job, don’t be tempted to take the money from your old retirement plan, unless you're moving the funds to a new employer’s plan or direct into a tax-deferred IRA directly. If you have the assets paid to you, the plan administrator automatically takes 20 percent out as taxes and you incur a 10 percent tax penalty at year's end. That’s 30 percent off the top.
Take Advantage of Other Savings Opportunities
Not everyone has access to company retirement plans. If you don’t, it’s a good idea to start your own through either a Roth or Traditional IRA. Traditional IRAs allow you to put aside money for a tax deduction now (but you're taxed on it once you access it). Roth IRAs offer a huge advantage to people just starting out: your savings grow tax-free. If you need to, you can pull the money you contributed without taxes or penalties; only the earnings incur penalties if you aren’t retirement age. For both types, there are both contribution and income limits.
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