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.