Retirement. Ideally, it will happen to you, and at a time of your choosing. When it does, all the decisions that Current You made about your money during the preceding decades will become crystal-clear to Future You. Some of those choices will be revealed as masterful; others may be rued. Future You might even find himself having thoughts like, "If only someone had told me that counting on an inheritance was a bad idea." Well, we're here to tell Current You that it is. And while you're at it — here are 10 other things about saving for retirement that may not be brought to your attention. Tell Future You, "You're welcome." To live your life to the absolute fullest, start checking off these 40 Things You Must Do in Your 40s!
1 | You can make up for lost time
Unless you've managed to master time travel, the advice to start saving is cold comfort at this point. Sure, getting a jump on putting money away for retirement is about the most solid recommendation there is. But the fact that young folks aren't eager to throw their hard-earned cash at a secure dotage isn't lost on Uncle Sam. The U.S. government encourages workers 50 and older to save more than younger employees by offering catch-up contributions for retirement plans. It's a chance for Johnny-Save-Latelies to get back on track.
2 | You should bet on Wall Street
We live in volatile times, which can make the stock market seem like a risky place to park your savings. But the truth is this: You need an annualized return of 7-8% to succeed, and no other investment will earn enough to get you where you need to be. For example, aside from a 16-year period between 1990 and 2006, the market has been a better long-term savings strategy than real estate. And yes, like real estate, the market is subject to booms and busts. In fact, it has more of them. But when all is said and done, stocks produce greater returns. You have to think long-term. Don't worry about the never-ending financial and economic issues that move the market every day. That's just one of the 25 Things Rich People Always Do!
3 | Fees can make a huge difference to your plans
Fees incurred through your 401(k) plan don't sound like much. But over time, they can dramatically slow the growth rate of your money. Assuming a 7 percent annual return and fees and expenses of 0.5 percent, a 401(k) contribution of about $7,795 per year over 35 years will get you to $1 million. But if your fees are 1 percent higher (1.5 percent total), you'll need to save $1,895 extra per year to make up for them.
4 | Saving the first 100k is the hardest
You know how multi-millionaires like to remark that earning the first million was the toughest? Well, when you're saving for retirement, the $100k milestone can be most daunting. Why? Well, when you're just starting out, your contributions account for most of the growth in your retirement funds. It's only with the passing of time that your funds get some momentum behind them thanks to earnings from capital gains, dividends and interest. Get going with these 25 Best Wealth-Building Tips Ever!
5 | Gaps in employment can mean savings falling through the cracks
Chances are, at some point in your career you'll change your employer, get laid off, stop working because of illness, or even take some time out of the workforce. Any of these changes could interrupt the rate at which you're socking money away for the golden years. To keep your retirement plan on track, you may need to park savings in an IRA or taxable investment account until you become eligible for a new retirement plan at work. Even better: Fireproof your life with these 20 New Rules for Successful Entrepreneurs!
6 | Don't rely on Social Security
If you're in your 30s — or even your 20s — chances are that Social Security will be there for you to take advantage of when you clock out for good. However, it's important not to overestimate what it'll amount to by then. According to the Social Security Administration, at the beginning of 2015, a monthly retirement check was only $1,328. Think of Social Security as a secondary source of income that can make up for shortfalls in your savings — not an amount large enough to depend upon to keep you in retirement.
7 | Thinking of #1 will pay off later
To help others, we must first help ourselves. It sounds harsh, but this means putting retirement savings before other monetary responsibilities, even your kids' college tuition. Why? Well, as fiendishly expensive as college has become, your kids have far more options to pay for their education (scholarships, loans, work-study) than you do in paying for your retirement. So you do you, then help them. Start with these 31 Best Ways to Save for Retirement!
8 | Early withdrawals mean pain
An early withdrawal can be disastrous to your dreams of having a million bucks in your war chest by the time you retire. Whenever you withdraw money from a 401(k) account, you'll have to pay income tax on the amount withdrawn. And generally, those who withdraw money before they turn 59½ are also charged a 10 percent early-withdrawal penalty. Ouch! Keeping an emergency fund outside of your retirement account is a much better plan for a financial cushion.
9 | Have multiple savings plans
Talk to a financial advisor about your ability to save your money in more than one retirement plan at the same time as contributions to different savings plans are no longer interdependent. If you can afford it, maxing out more than one tax-deferred plan is an excellent way to catch up on retirement savings. And with all that cash saved, spend the rest using this list of the 40 Best Ways to Spend Money in Retirement!
10 | Don't be psyched out by lofty goals
Two million dollars. That's how much you're going to need to save if you' make $65,000 a year, plan to retire about 30 years from now and replace 70% of your current income for 25 years. That's enough to make anyone lose sleep. But rather than get discouraged, your best bet is to think of that princely sum as motivation for saving rather than a than an all-or-nothing figure at which to arrive on your 67th birthday. While it's good to aim for the stars, a recent survey discovered that the average amount a person needs for a "happy" retirement is around $500,000.
