So it’s 2020, and maybe you didn’t save enough over the past decade — or do the wisest things with what you did save.
Don’t worry, you have lots of company. But it’s never too late to start saving, and it’s never, ever too early.
Since it’s a brand-new decade, it’s the perfect time to realize that long-term savings and retirement planning ought to be thought of in 10-, 20- and even 30-year time increments.
Of course, that depends on your age and financial situation. But regardless, the math is much kinder to those who regularly contribute to their investments over time.
And, statistically, the longer the time frame, the better most do.
What’s the best way to start? If your company has a 401(k) plan, take advantage of it and contribute from each paycheck.
For the younger ones out there, it doesn’t have to be a lot of money, just something every pay period.
Additionally, 401(k)s are tax deductible up until you hit the government limit of $19,500. So you’ll keep more of your paycheck under your control and reduce your tax bite. And it will grow tax-free until you begin required minimum distributions, or RMDs. And this year the RMD age gets bumped up to 72! So there’s a lot of time for Gen X, Y and Z types to compound their capital tax-free until retirement.
If your company doesn’t have a 401(k) plan, try an IRA, or a SEP if you’re self-employed. All have similar features of tax-deductible savings and tax-free growth until retirement.
There is risk to consider. Every year won’t be 2019, with the S&P 500 up 28%, and every year won’t be 2008, when the S&P sank 40%. But during the 10-year period between January 2007 and January 2017, you would have earned a 58% return.
Expansions and recessions come and go — so try to stick with it. Remember, the math has paid off for over 200 years!