Saving for your retirement is a critical personal financial decision. The sooner you begin to invest into your retirement account(s) the more money you will have for your later years. That is because you will invest more of your money and that money will increase because of your company’s match, capital gains, dividends and/or growth. My Net Worth Millionaire Plan will show you when and how much you should save for retirement.
I recommend that you save 15% of your income into your retirement account(s). Now the question becomes; how can I save this 15%? I know that 15% may seem impossible for some of you. However, making good personal financial decisions will put you in a position to reach that 15% so keep on reading….
My Net Worth Millionaire Plan will provide you a detailed step-by-step approach toward getting to that 15%. I recommend the following steps:
- Take advantage of your company’s 401(k)/403(b) match (free money)
- Payoff all debts (excluding your home) i.e. credit cards, car loans, student loans and etc
- Save a full Emergency Fund
- Invest 15% of your income into your retirement account(s) including the percentage you saved to take advantage of your company’s match
My focus has always been on building my net worth, so I am going to take advantage of my company’s match before I move toward paying off debt and saving a full emergency fund. My employer matches up to 5%. This 5% is equal to a 100% return on my money. For example, an employee who earns $50,000 a year whose company matches up to 5% could receive up to $2,500 invested into their retirement. The financial breakdown is as follows:
$50,000 (salary)
x .05 (5%-employee’s investment into 401(k)/403(b))
$2,500 (employee’s investment)
The company will match you 5%. That’s another $2,500.
$2,500 (employee’s investment)
+ $2,500 (company’s match)
$5,000 (total invested into 401(k)/403(b) by employee and company)
It’s hard to invest an additional 10% into your retirement when you are loaded up with debt. Student loans, car loans, credit card debt, IRS debt or pay-day loans are robbing you of your financial future. Ferociously payoff all of your debt (excluding your home) and never borrow money again. Keep a look out for a future article on paying off debt. For now, pay it off. Once your debts are paid off, use those previous debt payments and save a proper Emergency Fund.
Now that you have no consumer debt and have an emergency fund, you will be able to start climbing toward investing 15% of your income toward retirement.
A 40-year-old, with a salary of $50,000 who invests 15% of their income into retirement with an 8% annual return will have the following amount at age 65 (Calculator).
- $572,000 (over $760,000 with a 5% company match)
Also, when you are ready to retire, you will have no consumer debt and a retirement account that equals between half a million to three-quarters of a million dollars.
This simple calculation does not include any raises that you may receive throughout those 25 years or if you saved 15% of your salary for 30, 35 or 40 years.
MY PERSONAL THOUGHT PROCESS
I feel compelled to tell you about my cynical side; I do not trust any local, state or federal governments to properly handle pensions or social security. Most counties and states are broke. The federal government is always looking to reduce/change the pension system and the Social Security Administration may have to cut back payments in 2034, according to Social Security Administration’s 2017 Summary. To be honest with you, this is a tough article to read so you may want to skim it.
My wife and I pay into social security and I am in a federal government pension program. However, we are not relying on them to provide us additional money in retirement. We want to control our own destiny. We save and invest into our own retirement account(s) as if that is all we will have when we get to retirement age. If we happen to receive social security (or partial) benefits and a small pension that would be icing on the cake. On a side note, I do not handle being stuck somewhere very well. Therefore, I do not want to have to stay in my job because I need this pension. I want to continue my employment because I like what I do for a living and it challenges me.
PENSION
For those of you who are required to invest 5-10% of your income into your pension program, then I would count about half of that toward your 15%.
For example, if you are required to pay 8% of your salary into your pension, then I would count about 4% toward your 15%. That means you should still save an additional 11% into your retirement account(s).
15% (your goal) – 4% (half your required deduction) = 11% remaining
Saving for retirement is critical and it must begin now!!! Read the action steps below to put yourself on a plan to save for your future:
RETIREMENT ACTION STEPS
1-Save one month of expenses in an Emergency Fund
2-Invest up to the company’s match-401(k)/403(b)
3-Payoff all debts (excluding your home) smallest to largest (future article coming)
4-Save 3-8 months of expenses in an Emergency Fund
5-Invest 15% of your income into retirement
Ultimately, saving for your retirement is a critical personal financial decision. The earlier you begin to save for retirement, the more money you will have in retirement due to the amount you invested, capital gains, dividends and/or growth. Therefore, having an emergency fund and paying off your debt will provide the opportunity to invest 15% of your income into your retirement.
