By Caleb L. Swiney, Spring 2019 IAC Student Intern
Most people know that they need to save for retirement, but that’s the easy part. Actually beginning to save, knowing how much to save, and, most importantly, knowing who to trust your savings to are where the difficulties begin. Luckily, FINRA has outlined a checklist to help investors navigate those questions. Each of the following four tips are important to not only those investors who are starting to save for retirement, but also those who want to strengthen their savings plan.
- Start Saving Specifically for Retirement
Saving for retirement is a lifelong commitment. FINRA suggests starting as early as possible, noting that a 22 year old who saves $200 a month will have saved $76,00 by the time he is 40, if he invests that income in an account yielding six percent interest per year. For some investors, however, this amount may be too much to realistically put away per month. Luckily, step two addresses how you can still enjoy a comfortable retirement, even if you are unable to start investing that amount of money today.
- Give Yourself a Savings Pay Raise Each Year
FINRA suggests that you should be saving at least ten percent of your total income per year. They also note that twelve to fifteen percent is an ideal amount. If you aren’t currently able to save fifteen percent of your income or more, then you should plan to increase the amount that you save on an annual basis. These increases can take place at the beginning of every calendar year or at a time in which the investor’s income stream will be increasing, such as when the individual is promoted.
- Don’t Stop Saving for Retirement Just Because You Reach an IRS Limit
The IRS imposes limits on certain savings plans including IRAs. In 2019, an investor who is under fifty years old can only put $6,000 in an IRA per calendar year and those who are fifty or older can only contribute $7,000. Unfortunately, these limits are by no means the total amount an individual needs to retire comfortably. In addition to these limits, individuals need to have separate savings accounts which are purposefully marked for that purpose and not accessed until retirement. These additional accounts can be as simple as a savings account with your local bank or as sophisticated as an account managed by an investment advisor.
- Evaluate Investment Fees
No matter how you chose to invest, beware of investment fees. In some instances, these fees can negate any returns that your account may be earning. FINRA suggests reviewing these fees on a frequent and consistent basis. Although investors rarely have the ability to negotiate such fees, they do have the ability to choose investments that are generally associated with lower fees. For example, an index fund will have lower fees than a personally managed fund.