The first step to retirement planning is to jump on board with one of your employers IRA or 401K account. If you don’t know if it’s available, now’s the time to find out. If you’re looking for a job select one that offers these as they are well worth it.They’re free and many times an employer will contribute the the account to make your savings really grow.
With each account type you can select some investment options. Some that re invest dividends (profits from the stocks), and some that invest in different industries. In the long term many of the options will yield the same growth, as most of the fund in the accounts get traded across many stocks that will move up and down in value creating a long term growth as the individual stocks in each account rise. It’s more complicated than that but at the end of the day all we care about is if our retirement savings account is increasing. Wouldn’t you agree?
A growth account is needed for retirement savings because a regular savings account that grows at a rate of 2% (or whatever the current rate is) is a rate that is less than inflation. What that means is that down the road, your savings at a 2% growth is actually worth less in the future. So one of the most important aspects of retirement savings is to look for a growth rate of at least 10% to keep up with the rate of inflation. Inflation at 10% means for example the buying power of your money decreases 10% each year. In simple terms, a loaf of bread is 10% more, or rent is 10% more and so on. That is how inflation calculates into your retirement.
It has been said that the safest of all investments is a mutual fund retirement account because the growth is steady. For a faster growth some might choose to invest in stocks but that game is always risky. The mutual fund route invests in many different areas of stocks and bonds and offers the safest alternative as some losses are offset with the gains on other areas which allows you to see a positive yield even in the most negative situations that might arise in the market. And there will be plenty of those; big gain days and big loss days but overall over time you will see some nice gains.
One of the best choices you can make is to diversify. With so many options out there it doesn’t make sense not to. It’s a safe choice and can help to keep your money secure while giving you a decent steady rate of return. You can have some stocks, some bonds, mutual funds, index funds and target date funds are some of the options you might get presented with.
The bottom line is that you must have a savings plan in effect if you intend to retire and have money to live on. Imagine now if you miss only 1 paycheck or you miss a day or a few hours at work. Most Americans will find themselves short on many bills if that were to happen. Likewise many folks will delay retirement, even at a job that offers a pension because after all who can afford to live on half salary. Many people live above their means and half of that barely covers a modest day to day.
So the 1st step is the most important, an IRA or 401K is the key to start your retirement planning and savings and help you to enjoy your golden years in the way that you have always wanted.