Knowing how much money you may need to save for retirement can be scary. Fortunately, you don't have to come up with hundreds of thousands of dollars in retirement savings overnight. Time is on your side, and so are several time-tested strategies for putting other variables to work for you:
Get help from an expert
Most of us feel comfortable consulting with a physician if we don't feel well. We don't hesitate to call a plumber or an electrician if something's wrong with our home. We engage nannies to help care for our kids, and we even hire personal trainers to help us get in shape.
When it comes to preparing for the future, consider working with a financial advisor. These investment professionals can bring experience, expertise, and the comfort of knowing you're not in it alone.
Of course, you'll want to interview more than one candidate for the job of helping you plan - and to check references and make sure the advisor's philosophy is in line with yours.
To find financial advisors in your area, use Calvert's Advisor FinderTM service.
Pay yourself first
One save-for-retirement rule makes all the other rules easier to follow - pay yourself first.
Contribute to your employer's qualified retirement plan through payroll deduction:
- If it's not in your paycheck, you can't spend it!
Contribute to your IRA through automatic withdrawals from your checking account:
- If you can't write a check for it, you can't spend it!
By paying yourself first automatically, you're forced to live on what's in your paycheck and in your checking account - while you're saving.
How much should you be paying yourself? Generally, financial advisors suggest saving at least 10% of what you earn. If you're just beginning your career, practicing the 10% habit can get you off on the right foot. If you're starting later, consider saving more - perhaps as much as 20% of your income.
If you're eligible to participate in an employer's retirement plan and a company matching contribution is offered, consider saving in the plan first. The employer match is essentially free money for you, so contribute at least the percentage of your pay that is eligible for the match.
Put compounding to work for you
Einstein considered compounding one of the most powerful forces in the universe -- and so do we! Compounding is the delightful process by which your money can make money because of earnings on earnings, or compounding returns.
To see how compounding can work for you, imagine saving just $50 per month. The chart below illustrates the differences between what can happen if you simply stash the money under a mattress and because of compounding, assuming an 8% average annual return on the money in a tax-deferred retirement account:
This example may help to explain why financial advisors say, "The sooner you start saving, the harder compounding can work for you."
Know how small amounts can add up
Maybe you can't save $50 per month right now. What about $10 per month? Or even $5? If you think these amounts aren't worth saving, think again. They won't completely fund a retirement, but they can make a significant contribution.
To see how these amounts and others could add up over time in a tax-deferred retirement account, use the interactive Calvert Retirement Planner.
Harness the power of tax deferral
Why save first in an IRA or an employer plan rather than a taxable account? A tax-deferred investment can put you ahead both now and in the long run.
Use mutual funds to make saving easy
Today, half of all American families have investments in mutual funds.1 One of the main reasons funds are so popular - they've grown more than 500% over the past 20 years - is that they combine professional management, diversification, and convenience:
- Fund managers and their analysts have time and resources unavailable to individual investors. They can scrutinize companies for investment potential, financial strength, and other important characteristics.
- The variety of companies in which you can invest through a mutual fund diversifies your investment and as a result helps reduce risk.
- Funds reinvest any income earned to purchase more company shares without any work on your part.
Calvert offers mutual fund portfolios with a broad range of investment objectives in a single fund family. From money market to bond, equity and international stock funds, Calvert funds can help you reach your goals. Calvert is a leader in both fixed income and socially responsible investing.
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