Here’s the truth: if you’re relatively young and you’re already saving for your retirement, you’re an outlier. You’re also on your way to a more comfortable retirement. But if you’re anything like the rest of us, you’re probably wondering why you should bother saving for your retirement goals when there are so many other good things to spend the money on now. Won’t the future sort itself out? In a word, no.
Five reasons why saving early for retirement makes sense:
- You may live quite a long time in retirement. Longer than you expect, in fact. If you’re one of the many people who underestimate how long you’ll live in retirement, you may find yourself running out of money.
- Some people find that their expenses decrease in retirement — their house is paid off and children have moved away. But many others find that their dreams for retirement come with big price tags. Depending on your retirement goals, you may need a minimum of 70 to 80 percent of your pre-retirement income.
- Social Security may not cover all your retirement expenses. According to the U.S. census bureau, today’s retiree gets less than half their income from Social Security. The rest will need to come from other sources, like personal savings and pension plans.
- Inflation may take a bite out of your retirement savings. Remember your dollar may buy a lot less in the future than it does today.
- You can take advantage of an employer-sponsored savings plan now. Matching contributions and tax incentives make your employer-sponsored plan one of the smartest ways you can save.
Here are some other great reasons to invest in your employer’s plan:
- Your plan offers a variety of investment options managed by experienced professionals.
- You can save automatically. Simply specify how much, and the amount will be automatically deducted from your paycheck and deposited to your plan account — before you ever see the funds.
- Your contributions reduce your current taxes. Because your contributions are made with pre-tax money, you reduce your overall taxable income, which adds up to considerable savings.
But don’t stop there — put the power of compounding on your side
When you save in a retirement plan, you’re putting the power of tax-deferred compounding to work for you. Your money can grow faster because earnings that could have been taxed get reinvested and earn even more. In addition, if your budget permits additional savings, the power of compounding interest can yield considerable savings in after tax choices such as savings accounts. Speak to a financial professional to learn more.
This material is provided for general and educational purposes only; it is not intended to provide legal, tax or investment advice. All investments are subject to risk. We recommend that you consult an independent legal or financial advisor for specific advice about your individual situation.
The tax information herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.
Securities offered through Voya Financial Advisors, Inc. member SIPC.
Neither Voya™ nor its affiliated companies provide tax or legal advice. Please consult with your tax and legal advisors regarding your individual situation.