Saving for Retirement
Saving for Retirement Is a Lifelong Process
For those in their 20s and early 30s, retirement seems so far away that thoughts about saving for retirement run along the lines of "I will save if I can, but if I can't, it's not going to matter much." Unfortunately, as those in their 40s, 50s and 60s are discovering, not contributing to your retirement savings throughout your lifetime can often have adverse effects on your desired lifestyle and may require you to delay your retirement for several years.
So, if you're now realizing that you should focus more on saving for retirement, some questions you may be asking include:
When should I start saving for retirement?
How much should I be saving for retirement?
Where should I be saving for retirement?
How do I select investments?
How can a financial advisor help me save for retirement?
The simple answer is "now." So, if you've already started saving for retirement, then you're doing the right thing.
"What if I can't start now?"
Then start as soon as possible or, better yet, start by saving a little right now. There are lots of small ways you can start contributing to your retirement funds. You'd be amazed at what saving $50 for retirement every month now can do in the long run -- especially 30 years from now.
Saving for retirement is a very personal process, so the answer to this question depends on a variety of personal factors, including:
- Your current age
- The age you plan to retire
- Whether you're married and have a family
- How comfortable you want to be when you retire
Here is some basic retirement advice you can follow to help you as you're saving for retirement:
In your 20s and 30s. Try to save 10 percent of your income to your retirement fund with an automatic savings plan, and increase the amount you save whenever you receive a pay raise. You won't really miss it, and you'll likely be happy you did when you're closing in on retirement.
In your 40s. Hopefully, you're reserving somewhere between 10 percent and 20 percent of your income for your retirement savings. You should also consider investing for retirement on your own outside your employer's plan. In addition, you should try to resist the urge to cut back on how much you're saving for retirement to meet other expenses or accommodate other goals. Talk to your financial advisor if you're considering making such an adjustment.
In your 50s. By this time, you should be setting aside 20 percent or more of your income for your retirement savings. It may seem like a lot, but you're probably starting to crave a certain retirement lifestyle, so it may not be as difficult as you think to make adjustments to your budget to prepare for retirement.
In your 60s and 70s. If you're still working, you should still be saving as much as you can, so that when you do finally retire, you'll hopefully be living your retirement dream.
Your Financial Advisor can offer a more in-depth look at your retirement needs and help you customize a retirement plan that can help achieve the retirement lifestyle you want.
When it comes to how to save for retirement, you have many options, including tax-advantaged retirement plans, accounts, and investments.
401(k), 403(b) and other employer-sponsored plans. Many employers offer qualified retirement plans as part of their benefits packages. These company-sponsored plans help you set aside pretax money to invest in a range of investments (often mutual funds). The potential growth of these investments is tax-deferred, which means you don't have to pay taxes on the capital gains, interest and dividends until you withdraw the money from the account.1,2
In addition, many employers offer a matching contribution (up to a certain amount in most cases). Those matching contributions are designed to encourage you to start and continue saving for retirement, which is a great reason to take advantage of the employer-sponsored plan.
Individual retirement accounts (IRAs). An IRA is a retirement account you set up for yourself. Like employer-sponsored plans, a traditional IRA lets your retirement savings grow tax deferred until you withdraw them.1 A Roth IRA offers the potential for tax-free distributions if you meet certain age and holding requirements.3 When you contribute to an IRA, you can choose from a broader array of investments.
Annuities. Annuities (which are issued through life insurance companies) also offer tax deferral for money you're saving for retirement. They're structured to help you create the income you'll need once you retire.
Variable annuities are long-term investments suitable for retirement funding and are subject to market fluctuations and investment risk. Withdrawal of earnings are subject to ordinary income tax. In addition, a federal 10% penalty may apply to withdrawals taken before age 59 1/2 and surrender charges generally apply.
Insurance products are offered through nonbank insurance agency affiliates of Wells Fargo & Company and are underwritten by unaffiliated insurance companies.
Deciding on an appropriate mix of investments in your retirement portfolio is a very important part of saving for retirement, and selecting individual investments is much simpler once you've defined an asset allocation strategy and determined how much you should invest in the different types and categories of investments.
Your Financial Advisor can help you develop a strategy to prepare you on how to invest for retirement that's based on your financial goals, the number of years to retirement and how much risk you're willing to take with your investments. Once you have your retirement fund strategy in place, your Financial Advisor can work with you to select specific investments that fit within that strategy.
Your Financial Advisor has access to a vast array of resources, services, and planning tools that can help give you retirement advice as you're investing for retirement, including retirement planning specialists and market professionals. Ask your Financial Advisor for more information about our retirement planning services.
1Withdrawals before age 59 1/2 may be subject to a 10% IRS penalty in addition to regular income taxes (some exceptions may apply).
2When you change jobs, tax-deferral may be extended by rolling retirement assets into another qualified employer-sponsored plan or IRA.
3Qualified Roth IRA distributions are not subject to state and local taxation in most states. Qualified Roth IRA distributions are also federally tax-free provided a Roth account has been open for at least five years and the owner has reached age 59 1/2 or meets other requirements. Withdrawals may be subject to a 10% Federal tax penalty if distributions are taken before age 59 1/2.