When retirement is more than 20 years down the road, it can be hard to get and stay motivated to start saving. But here’s a new finding that might spark an interest: a recent survey shows people who starting saving for their nest egg at 30 were more prepared for retirement than those who waited five years.
The recent survey, conducted by TD Ameritrade, also showed that the young savers weren’t actively putting away money—it was as simple as having a percentage of their paycheck automatically deducted and placed into an account.
While many people, especially those in their early 30s, are living pay check to pay check, there are ways to save for retirement and still make ends meet. Here’s a look at three ways young workers can start growing their retirement nest egg now.
Take Advantage of Company Offerings
One of the easiest and least costly ways to start saving for retirement is to take advantage of a company’s retirement plan, which is usually a 401(k) plan.
At 30, retirement may seem far down the road at 30, but the longer workers wait the more they’ll have to put aside later.
“If you start at age 30 you have to put 10% of your income away as a benchmark. If you start at 45 you have to put 50% of your salary,” says Kevin Luss, president of financial advisory company The Luss Group.
Financial experts say a good savings benchmark is 10% of an income into your 401 (K) plan each year. If a company offers a matching program for a portion of employees’ savings, strive to pledge at least that amount because it’s free money.
“Every time you get a raise take one-third and put it away,” suggests Luss. “If you got a $3,000 raise about $1,000 would go to the IRS, $1,000 would go into savings and the other $1,000 can be spent how you want to.”
Under a company 401 (K) plan, the money is automatically deducted from a pay check and early withdrawals from the account would be subject to penalties, which is why advisors recommend never dipping into the money unless absolutely necessary.
“Treat it like a time capsule. Bury the money in 401(k) and forget about it,” says John Convery, founder and president of The Educated Wealth Center.
Create an IRA
Individual retirement accounts, more commonly known as IRAs, accounts are retirement saving tools, allow your money to grow tax free until the owner reaches age 59 ½. The accounts can be opened with as little as $50 at some financial institutions and don’t require a hefty investment each month.
“You can start with $250 and put $50 a month and what’s going to happen is you’ll get a statement in a year and all of sudden there will be $1000,” says Luss. “It’s like losing weight. You’ll see the statement and it will give you some inspiration to keep going.”
Another investment option is to invest in an index fund instead, according to Convery. Index funds are designed to mirror and match the performance of a stock market like the S&P500 but don’t have a lot of fees associated with it because it’s not actively managed. “The big mistake a lot of young folks make is they try to beat the market and go chase the best stock,” says Convery.
Make Savings Automatic
No matter the savings vehicle, experts recommend having the money automatically deducted from a paycheck or drafted from an account into the savings account.
According to the Ameritrade survey, of the prepared boomers, 74% had money automatically deducted from their pay. “Even with a small denomination get started into something and make it systematic,” says Convery. “Putting away small amounts of money in a regular regimented fashion and automating the process are the single best things a young person can do.”