Early-Career Retirement Planning

Retirement may be the farthest thing from your mind right now but the sooner you begin planning for retirement, the more money you will save in order to live comfortably after you retire. While you might prefer to be able to spend more now, your employer is helping to ensure you have a bright future.


How much do you need to save for retirement?

We get a lot of questions about “how much is enough for retirement.” While the answer mostly depends on your life expectancy (how many years you will spend in retirement) and your lifestyle preferences, such as whether you want to live frugally or in luxury, according to the Bureau of Labor Statistics, retirees aged 65 and older spend an average of more than $43,000 annually.

The secret to having the retirement income you need and want is to invest early. With several years ahead of you before you are likely to retire, you have the opportunity to run a marathon as opposed to a sprint in terms of retirement savings. The returns on your investment will generate their own gains the next year, which is referred to as compounding.

The short answer

Most financial experts recommend saving between 15% and 20% of your current income toward retirement. Your employer is contributing toward that number, and you should consider putting additional contributions toward a 457(b) plan, if your employer offers it.

If competing bills and living expenses prevent you from being able to put 15%-20% toward your retirement, a good approach that our client services team recommends is to put away as much as you are comfortable with now, and gradually increase that amount or percentage over time. For instance, every time you get a salary increase or bonus, consider increasing your contributions.

You’ll thank yourself later for every dollar you save now.

The cost of waiting 1 year

How to invest

When it comes to investing, typically the more volatile option produces the highest return on investment over the long term, but carries with it the greatest risk of loss. By starting early, you are able to take more risk and have time to recover if the market goes down.

This is a strategy usually for early investors only. As you get older and closer to retirement age, it is best to be cautious with risky investment options. Following this conventional wisdom, CRA offers prepackaged target date fund portfolios that are designed with the right mix for each age group. You might consider selecting a target date portfolio for your 401(a) and/or 457(b) plans. Or if you’d prefer to build your own lineup, some participants use the target date portfolios as a guide for assembling the right mix of funds themselves.


Financial Wellness

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After understanding the real cost of retirement and the value of starting early, you may wonder how you can save enough.

Here are some finance health guides for smart saving.

Develop good credit

It is imperative to start accumulating and maintaining good credit early. Having no credit at all or poor credit can mean the difference between getting approved or rejected for financing on a car and a house. Poor credit also can result in higher interest rates; creditors reserve the best rates for borrowers with a good credit history.  

Paying high interest rates on credit cards, loans and mortgages can cost you thousands of dollars on top of the base cost of your purchase. It’s best to shop around for the lowest interest rate and the shortest terms.  

Making timely payments will enable you to avoid high penalty fees and build a high credit score.

Establish a budget and emergency fund

It might be painstaking or seem uptight to create and follow a budget but it’s the best way to manage income and expenses, while also saving for the future. Having a budget allows you to understand how much money you need, if you can take on debt, and if so, how much debt you can afford. It also enables you to put away a little at a time toward savings to cover emergencies, fund big purchases and achieve your retirement goals. Several online tools are available today to facilitate budget management and expense tracking.