When Should I Start Budgeting for Retirement?


retired-happy-guyThe importance of beginning to save at the earliest possible age for retirement cannot be emphasized enough.

The sooner the better, as it will give your money time to grow and you will create a needed cushion to afford retirement.

Why start to save early for retirement? Because historically, most will not experience pension benefits or lifetime healthy coverage as did the prior generation.

In this light, the importance of starting to save for retirement as soon as early as possible, as soon as a steady source of income is established.

The decision to invest in a retirement account, like a 401(k), is an easy decision for anyone 40 or older.

What about those in their 20’s and 30’s? Or, those who are 18 and just landed their first job? As soon as you can, it is important to begin setting aside a small percentage of your income.

Let’s talk about one anecdotal account of beginning to save early, looking at the account of a lady we will call “Barbara”.

Barbara was fortunate enough to work for a Fortune 500 company, as they offered her a 401(k) retirement savings plan. She took full advantage of the situation, as well she should, as they matched a percentage of her own contributions to the account. She basically was being given free money, simply by taking her own money and putting it away in her retirement savings account.

Barbara did not have a lot of debt and earned a good salary. In addition to saving enough money for a down-payment on a house, she was able to sock away 15% of her income into her retirement accounts each year.

Doing this, provided Barbara with significant benefits.

For instance, by the time she was in her mid-30s, she was in charge of her financial life. She worked for a company for several years, and by the time she moved to another company, she, at such a young age, already had a solid nest-egg saved.

Yes, many people have debt, like student loans or credit cards, and many simply do not have the same option Barbara did, allowing them to contribute to a retirement account right out of school. If one is drowning in debt, the focus should be to pay down those loans.

Once someone has the debt under control, an emergency fund can be built to cover three months of living expenses – like rent, food, utilities, and other essential living costs.

Then, after money is set aside for emergencies, begin to invest a certain percentage of your paycheck, perhaps start with 1%, in a retirement account. Keep paying down your debt, and gradually increase the percentage of money placed into your retirement fund.

For small business owners or those who have income earning children, it is never too early to start and contribute to a retirement fund.

Small business owners can gain earned credit for their federal income tax by making yearly contributions to certain retirement accounts, like an Individual Retirement Account.

And, parents with children who earn income from outside sources should check with their accountant and determine the most efficacious way to about setting up a retirement account for them.

It’s always a wise decision to sock away money for your children’s future, if it’s education, and surely for retirement.

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Author Maria Bartiromo and CNBC’s anchor of “Closing Bell” discuss reasons why age should not deter someone from getting a 401(k).

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