“A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.” Suze Orman
After college graduation, I was fortunate enough to have earned a position as an Account Manager with the Financial Firm that I had been interning for. The firm offered a 401k and full benefits, and I had no idea what any of this meant. Thankfully, my job was to learn & explain employee benefits to our clients, otherwise I might still be floating along the category of “What in the Haypile Does This Mean.”
A 401k is a retirement savings account that you can only have through an employer that offers & sponsors the account. Many companies provide a match of around 3%, or their contribution standing might fluctuate at any given time. That is like getting a 3% bonus each year! Very important.
I am happy to say that during the 5 years at that company, I was able to contribute close to $10,000 into my 401k account. Now I sit here as a 27 year old, calculating what I will need to continue to set aside for my future retirement (which seems wayy far off as I have a baby and a toddler). In reality, the years fly by, and I need to handle this now.
I used a 401k calculator that shows how much I’ll have if I contribute different amounts & if my employer contributes as well. If I have a retirement age of 65 (honestly, I’d like to work longer), that approximate $10k that I starting saving at 22 years old adds an additional $120,000 to my retirement account balance!
CNN has a great retirement calculator to show you what that ending 401k retirement balance needs to be at in order to retire. I was astounded to find that I will need $1.3 million by age 67 to retire (enter bug eyes face here).
I still have a long way to go. What I do know is that I can’t just sit on this starting nest egg and expect to live off of $120k for approximately 30 years ($4,000 per year, umm that sounds like a nightmare).
A good goal is to start by saving just 5% each paycheck, and have a goal to add 1% each year. Ideally, it is best to save 10%-12% (possibly more, depending on your age), but if you plan on saving 2-3% of each paycheck, you will find yourself in a crisis later on in life.
If you are 25, your salary is $35,000 and you haven’t started saving, you will need to set aside 12% of your paycheck if you want to retire at age 67.
If you are 35, your salary is $35,000 and you haven’t started saving, you will need to set aside 17% of your paycheck if you want to retire at age 67.
If you are 45, your salary is $35,000 and you haven’t started saving, you will need to set aside over 25% of your paycheck if you want to retire at age 67.
Wherever you are, the important part is to start. It is important to get those ducks in a row.
If you work for yourself or your employer does not have a 401k, talk to your local bank about starting an IRA, and consider your options.