Create a Basic Retirement Plan

Create a Basic Retirement Plan

Most personal finance experts agree that you will need about 80% of your monthly income replaced during retirement. To make that possible, it is important to save and invest throughout your working life. Want to know where to get started? Read on.

Start Saving With Your First $1

If you are not saving anything for retirement today, it is time to stop making excuses. Saving starts with your first $1.

What is keeping you from saving? What mental block? Do you think you can’t afford it? I bet you can afford $1 per paycheck. Are you already living paycheck to paycheck? Why not work on a basic budget that allows you to start saving. Don’t know where to put your money? Start putting $1 per paycheck into a Roth IRA. Don’t worry about stocks or funds yet. Just get started.

Save as Much As Possible

Once you get used to saving a small amount, try to start saving a bigger amount. Even 1% of your paycheck is a great place to start, but if you can save as much as 20%, you will be in much better shape later on when you need to draw on retirement funds.

Every few months since I paid off my student loans, car loan, and refinanced my mortgage, I have found I have enough extra income to increase my 401(k) contribution by 1% every few months. Just that little push, less than $50 per month, makes a huge difference for my future.

Don’t Miss Out on Employer Match

If your employer offers any 401(k) matching, never ever miss out. Contribute at minimum what you would need to get 100% of what they have to offer.

Many companies offer a 100% match on up to 3% of your pay. If you put in 3%, they double it. It is like a 3% pay raise for saving money. If you don’t take advantage, it is like throwing away free money.

Cut Spending to Make Saving Possible

If you are spending too much to save, take a look at your budget and find places you can save easily. Long-term, big wins are the best savings you can make.

If you don’t have a good budget today, my favorite new budgeting tool is the money tracking program at Learnvest. Their app is 100% free and help you identify your average spending on wants and needs so you can find places to save.

My Retirement Savings Plan Today

I worked hard to build an easy, automated retirement savings plan that was easy to setup and only takes a few minutes every three months to maintain.

Company 401(k) plus match – My company will match 100% of up to 4% of my salary in my company sponsored 401(k) plan. I put 8% of my salary into my 401(k), so my combined contribution is 12%. The bulk of that goes into a mutual fund for people retiring around 2045.

A 401(k) plan is a pre-tax retirement account. That means you don’t pay taxes on your contributions, but you do pay taxes on your withdrawals.

Roth IRA – The maximum you can put into an IRA (Individual Retirement Account) changes each year and is subject to income limits (very high earners can’t take advantage of the tax benefits of an IRA). In 2012, the standard contribution limit was $5,000 per year. In 2013, it is $5,500.

I get paid every other week, so I get 26 paychecks per year. To make sure I hit $5,500 without stressing, I have my company direct deposit $211.54 into my Roth each payday. Every few months, I log in and invest that in a low fee Vanguard fund.

A traditional IRA is pre-tax, like a 401(k). A Roth IRA is a post-tax plan. You pay income taxes on your contributions, but you don’t have to pay taxes when you withdraw for a first home purchase or in retirement.

Your Retirement Plan? Questions?

Want to know how to start saving in your 40s? Any specific questions? Please let me know in the comments or send me an email.

Image by StockMonkeys.com / flickr