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5 Steps to Get Yourself on the Right Retirement Path When You Are 25
The stock market meltdown and recession shattered most Americans’ image of an idyllic retirement.
The non-profit Employee Benefit Research Institute released this month a survey with stunning results. What do you think about this – talking about shaky savings habits evident before personal wealth plunged are even more obvious coming out of the recession:
54% of workers have never tried to calculate how much money they will need for retirement. Even among workers 55 and older, 47% still haven’t done the math.
27% of workers surveyed say they have less than $1,000 in savings, and more than half of workers surveyed say that the total value of their household’s savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000.
Dallas Salisbury, EBRI president and CEO says “The fact that the markets are still well below 10-year-ago levels underlines the necessity of thinking long term and saving out of every dollar of income.”
“An emergency fund that will support you for a year has always been good advice, but the current crisis screams out why.”
“And that emergency fund will help in retirement and save you from withdrawing money from retirement accounts. Choose to save for your future and sleep better as a result.”
We read the survey and some other sources and decided to divide the results into 3 articles – when you are 25, 45 or 65 – the needs and desires are different. Here is what they strongly recommend you do at 25.
If you’re 25
Step 1. Make a budget.
If you don’t have sufficient cash to cover expenses and savings which is the case for far too many young people, you have two options: Slice spending or increase income by working more hours or getting a second job. It’s easier to work extra hours before you have family obligations. Saving 15% for retirement annually is a good goal to shoot for. People who set a goal are more likely to reach that goal. You can also find great info from American Savings Education Council.
Step 2. Consider moving in with Mom and Dad.
Thirteen percent of families with grown children said an adult son or daughter moved home last year – sometimes there is no other way. You are very lucky if you have this option as not many people do. It will allow you to stockpile cash for retirement, purchasing a home, planning a wedding and having kids. The downside is you may may affect your parents life as well as yours negatively – every case and family is different.
Step 3. Pay down debts.
Paying those debts off first is a no-brainer (when you pay interest on college loans and on your credit card balance)! To see how long it’ll take, try the credit card pay-off calculator at www.feedthepig.org! I just love the name of that site…
Step 4. Make the match.
If your employer offers to match contributions to your pretax retirement account, contribute enough to get that match. If you don’t, you’re passing up free money, something no one would do under any other circumstance..
Check what happens! To see how increasing your current contributions now will buy your retirement later, try the 401(k) Savings Calculator at www.AARP.org
Step 5. Invest in the stock market.
At 25, you have the ability to handle ups and downs and fluctuations better in the market, because you don’t really need that retirement money for 40 years.
Not to say play with it but it is far safer for you at 25 than at 45.