Retirement Savings Strategies from Cove
Whether you are a college student or a recent grad, it’s never too early to think about retirement. One of the first steps is to think about what kind of retirement lifestyle you want. Do you imagine traveling the world? Owning a second home in a tropical location? Do you just want to live simply with no debt?
Knowing the basic lifestyle you want when you retire will help you determine how much money you will need to have saved up when the time comes for you to stop working.
Why start so early? Two words: compound interest. Compound interest is when interest adds to itself over time. For example, if you had $100 in savings and earned 5% interest that compounded annually, you would earn five dollars the first year, then $5.25 the next, then $5.51 the next and so on and so forth. The longer you have money in the account, the more money you will earn in the long run.
Check out this table of how much you will have saved if you put just $500 a year toward retirement based on when you start saving:
*The table assumes no money currently saved, an interest rate of 3.875 percent, savings are compounded monthly, putting $500 into savings a year and retirement at age 65.
|25 Years Old||35 Years Old||45 Years Old||55 Years Old||60 Years Old|
If you start saving at 25, you will save almost double than if you start saving at 35. The same is true if you start saving at 35 versus 45. The earlier you get started, the better off you will be.
Getting started on your future is simple with a few retirement savings tips:
- Invest in your company’s 401(k) program, especially if there is a match. It’s essentially free money.
- If your company doesn’t offer a 401(k) plan, invest in an IRA (individual retirement account). There are two kinds of IRA accounts, Traditional and Roth. The difference comes in when you pay taxes. With a Traditional IRA, you will be taxed when you receive the distributions, just as your current income is taxed. With a Roth IRA, you pay taxes before it goes into the account so when you receive distributions in retirement, they are tax-free.
- Open a CD (certificate of deposit) account. A CD is a low-risk savings vehicle that often comes with a better interest rate than a traditional savings account. It’s a great option for those who aren’t the best at leaving their money in savings because you commit to leaving your money in the account until it reaches its maturity date.
- If you haven’t thought about how much money you will need, but you know your pre-tax income, current savings, and tentative retirement age, you can use a calculator like our savings calculator to determine how much you will need to retire. From there, you can work on refining your retirement savings strategy.
Call us at (859) 292-9000 or visit our branch to learn more and to get started on saving for your future.