One of the more interesting personal finance trends is the idea that Americans feel more optimistic about their financial futures — but aren’t as optimistic about retirement.
According to a survey from Lincoln Financial Group, 81 percent of Americans are optimistic about what’s next for their finances in general, but only about 20 percent feel “very prepared” for retirement. The reality is that many of us think that things will get better, but we’re not sure that we’ll be able to retire when and how we want.
Part of the difficulty likely comes from the fact that many consumers feel as though they can’t set aside enough to make retirement saving worth the trouble. It’s easy to say that you’ll start saving for retirement when you make more money, but there always seems to be something else that crops up and diverts your cash flow another direction.
If you are serious about getting started on your retirement savings, now is the time to start. Here are some ideas to help you start saving for retirement today:
Sign up for your employer’s retirement plan
Perhaps the easiest way to save for retirement is to sign up for your employer’s plan. Many employers offer 401(k) plans and other retirement options. Double-check your employer’s policy since there are some that offer opt-out plans. You might already be saving and not know it. Check to make sure the default option meets your needs, and tweak your plan if it doesn’t.
Your employer will automatically take money out of your paycheck each month to go toward your retirement contribution. This is money that you don’t have to think about contributing because it’s taken care of for you. On top of that, your employer might offer a match. This is free money that your employer contributes to your plan on your behalf. Do what you can to get the highest match possible, since that will super-charge your retirement savings.
Open an account with a discount brokerage or robo advisor
If you don’t have access to an employer retirement plan, you can still start saving for retirement today. Open an account with a discount brokerage or a robo advisor. Almost anyone can contribute to a tax-advantaged retirement plan by using an IRA.
There are some brokerages that will let you open an account with as little as $25. If you sign up for an automatic investment plan, you can usually arrange to invest a smaller amount of money each month and purchase fractional shares of index funds. You don’t have to get started with stock picking (which is often futile). Dollar-cost averaging by buying what you can with a set amount of money each month can help you start building your nest egg without the need for a large lump sum.
Robo advisors like Betterment are relatively low-cost and allow you to start an automatic investment plan with as little as $100 per month. These types of accounts often make use of index ETFs and are automatically rebalanced according to your risk portfolio. It’s also possible to start investing using brokers like Acorns, which will help you invest your pocket change. (Acorns doesn’t offer tax-advantaged retirement accounts, though, so you won’t receive a tax break for your contributions.)
Consider a Health Savings Account (HSA)
If you have a high-deductible health plan and you meet other qualifications, consider a HSA. This account provides an extra tax-deductible place to keep your money. After you get a certain amount in the account, it’s even possible to begin investing in assets beyond cash. When you use this money for qualified health care costs, you benefit by not paying taxes at all on the money. However, if you get to age 59 ½ and you want to use some of the money for non-qualified expenses, the HSA acts as a Traditional IRA. It’s easy to save for retirement this way, and it’s another good way to get a tax break, if you qualify.
Increase your contributions over time
No matter how much money you have, it’s possible to start putting money toward your future today. Even if all you do is have $25 deducted from your paycheck each period and put into your employer’s retirement plan, that’s an upgrade from not saving anything at all.
However, you do need to get in the habit of increasing your retirement savings over time. Each time you get a raise, devote part of that higher paycheck toward a higher retirement contribution. Also, as you get more comfortable with your financial situation, you can begin increasing how much you put in. Don’t worry that you can’t invest a large amount right now. The important thing is to get started, and develop the positive habit of setting money aside for retirement.
The important thing is to get started today. The earlier you start, the earlier compound interest can begin working on your behalf.