"Time is on my side," said the old pop lyric , and truer words have never been spoken regarding youth and retirement savings.
Get an early start is the best thing you can do for yourself, even if you are not able to contribute much.
When you are in your 20s and 30s, you have plenty of time to enjoy the magic of compound interest and allow the market to bounce through periods of volatility.
It is also important to develop good habits early in order to maximize savings, avoid the temptation to use pension assets, and monitor what is happening with your savings.
Unfortunately, retirement savings is not always a top of mind issue for young people. After a few rules can pay dividends down the road when retirement is looming.
Start early
There will be a greater impact on your success as pension investor, due to the effects of compounding over time. This will probably be true even if you start small and there are bumps in the road.
The early start is particularly effective if you're worried about how much you can put aside.
Vanguard Investments released a research report there are some years tested scenarios and investment strategies for investors of 25, 35 and 45, to a retirement age 65
the investor who starts at age 25 with a moderate investment allocation and contributes 6 percent of salary will end with 34 percent more in his account than the same investor who begins 35 - and 64 percent more than an investor who starts at 45.
in other way, the 35-year-old would need to increase its contribution rate to 9 percent to the same result as the 25-year-old starter that saves 6 percent.
test this for yourself by using this simple calculator on the Vanguard website. Simply enter your age, current retirement savings and how much you save each month.
The calculation will show you how much you saved at the age of 65, and how you would be able to withdraw to a safe rate each month. If you increase the savings, even by a small amount and recalculate, you will see how you might have - mainly because you start young
In addition, BankRate recently launched an online calculator that allows you. see the power of; choose a start year and the amount you want to invest, and the calculator shows you how much investment would be useful.
For example, $ 1,000 invested in 1980 would have been worth a little over $ 40,000 in 2013.
Save as much as you can
with the benefit composition, a higher contribution rate is particularly useful if you are afraid of the risk of stock market and prefer a less aggressive portfolio.
The Vanguard study found that a pension saver from 25 economies 9 percent of annual salary with a moderate allocation finished with 13 percent of most contributing 6 percent invested aggressively in an account.
capture the match
If your employer offers a matching contribution to your 401 (k), make sure you contribute enough to max it out.
Young, lower-paid workers are most likely to contribute below corresponding to contribution rates -. A recent study found that 40 percent of workers in their 20s contribute below the match rate, against only 20 percent of people in their 50s
not cash
Many people cash their 401 (k) s when they change jobs, rather than roll savings in their new employer or more for an IRA savings. This interrupts the flow of compound returns and it is very difficult to make up ground lost over time.
Another option is to leave the money where it is if it is a good plan. Also, remember that distributions taken before you reach age 59 1/2 are subject to income tax and a penalty tax of 10 percent.
Watch your expenses
costs are one of the most important determinants of the performance of the long-term portfolio, so it is important to know what you pay.
If you work for a large company, chances are that the costs are reasonable. BrightScope, which tracks 401 (k) plan implementation, reports that charges in large 401 (k) plans have been in decline for several years. In 2012, the average total cost in plans with $ 1 billion or more was 0.34 percent. (The measure includes all investments to diet and administrative costs.)
In addition, a recent ranking of the 30 best BrightScope 401 (k) s found total plan costs on average only 0.28 percent.
If you work for a small business, the costs can be much higher. BrightScope said total costs in plans with $ 25 million or less on average assets of 1.29 percent in 2011.
Consider a Roth IRA
Roth IRAs are a highlight for the young. With a traditional IRA, you pay tax at the end of the line, when you withdraw money. With a Roth, you pay taxes in advance but the account is tax free forever. This is especially beneficial for younger retirement investors for two reasons.
First, most people move into the higher brackets of income tax as they get older and make more money. So, for the taxes on the way to lower rates is logical.
Furthermore, not only your original amounts chipped out tax free, so make your investment gains.
has what age did you start contributing to a retirement savings account
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