I’m a college senior this year, and graduation is getting closer for me. It’s starting to feel very real! I’m excited to get out there into the “real world,” but I’m also really scared about some things. A big thing for me is saving for retirement. I expect to have a decent job, but I know that saving spare change is not enough to get most people to retirement. And I know that I should put money into my 401(k) and stuff like that, but I’m worried that all of that won’t be enough, either. Is there another part of the equation that I’m missing? Experts, please help me make a good plan!
Retirement planning is something that a lot of Americans struggle with, and they struggle with it at all ages. The good news is that people seem to be wising up to the problem, and more and more Americans have been saving for retirement with each passing year. But the bad news is that there are still plenty of people who choose not to, or who simply can’t afford to. Disturbingly, a full 22 percent of all American adults have less than $5,000 in their savings designated for retirement.
That’s not enough, obviously, and it’s not even on the right track for people of most ages. A typical retirement savings benchmark is $1 million to $1.5 million by the time you retire, but that number can vary widely in a practical sense; if you’re living an upper-class lifestyle and want to continue that after you stop working, then you will certainly need to save more than $1.5 million. That’s a frightening prospect to many, and it’s not hard to see why!
So what can you do? You have the first steps down. You should be careful with your budget and be sure to spend less than you earn. Save the difference and, when you have some savings and a reliable emergency fund, start investing. The most efficient way to invest for retirement is to put money into your 401(k), IRA, and/or Roth IRA. Put as much as you can in (up to the legal maximum), because those accounts will give you tax advantages that make your savings more effective at providing you with a comfortable retirement. (Of course, you should remember that there are big penalties for removing cash from these accounts early, so don’t put more in them than you can afford to while still managing your daily expenses).
Investing is the best way to save for retirement, and the best time to do so is early on. Though it’s easy to get carried away with spending when you’re enjoying the fruits of your first job’s salary (and hard to save much if that first salary is relatively low, as in many cases it is), it’s key to try to save as much as you can. Thanks to compound interest, the money you save now will be worth much more than equivalent amounts saved in your 50s or 60s.
Once you have all of this working for you, it’s time to think about other sorts of assets besides stocks and bonds. By the time you retire, it’s likely that some of the biggest factors in your net worth will be large assets that you own. Chief among them will be real estate. Owning your own home can be financially advantageous in the long run, and owning other real estate can be lucrative.
If you find that you have the cash on hand to do so, you may someday want to consider buying an income property. Income properties are real estate investments that also generate an income, usually in the form of rent. Adding passive income to your financial plans can be a great way to save up for retirement faster. And while an income property is no substitute for a 401(k) or other investment account, it can work in harmony with your other investments to produce a more comfortable retirement.
Running a rental property takes work, of course, but modern landlords have the help of landlord software that makes it a breeze to post a rental listing, set up and accept a free rental application, and screen potential tenants. With assets like this, you’ll also want to chat with an attorney to set up things the best possible way from a legal perspective.
You’ll have other chances to invest in assets, and you should keep an eye out for them. From business ventures to insurance policies, the pricey things that you acquire should be seen as forms of investments whether that mindset is obvious or not. You should consider the cost-benefit of buying your home in much the same way that you’d consider investing in a friend’s company. Do that, and you’ll end up with assets that help you on your path to retirement and beyond.
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