Retirement
Most people don’t like to think of retirement when they get their first job. They just want to start accumulating nice things, fancy things, establish themselves. Get a car, rent a place, go on a holiday. These are all very nice things to do and yes, these things should be done. But successful people know that those things have their place and their time.
What should be done is to establish good spending and saving habits. That means a proper budget plan must be instituted. All budgets should include paying monthly or annual bills on time. Any standard debt such as student loans, car loans etc should also be paid off in a timely fashion. Hopefully, no bad debt has been accumulated (ex. Credit card debt). Then there should be at least two very important savings plans that should be started right away.
The first is an Emergency Savings Plan. It needs to be started asap in order to build up some funds so they can be used for real emergencies. To learn more about Emergency Funds click here.
The second is a Retirement Savings Plan. The good thing about a retirement plan is that it is for the distant future. That means that a lot of funds don’t need to be put aside immediately (but don’t leave it for long). It should, however, be started asap, even if only a little bit is put aside each month. There are two reasons for this:
1. To start making good savings habits and,
2. To match an employer’s retirement savings plan.
When My Retirement Plan Starts
Any retirement plan needs to include:
- Government pension plans,
- Company pension plans and
- Personal retirement plans.
One of the best things people can do is to use an employer’s matching retirement plan. Your savings can grow so much faster because the interest and/or profit will accrue for so much longer.
Another reason that a retirement savings plan should be started asap is the longer funds can be accumulated the less amount per month is needed. If a retirement plan is started much later in life it will take much more per month to accumulate what will be needed to finance life in retirement.
The faster funds are accumulated the quicker the funds can be invested. Invested in a decent plan usually accelerates the accumulation even quicker.
All funds should be set up in a registered government retirement plan. These plans will initially save on taxes.
Understanding Government Pensions
People must know how the system works. To get a good government pension you must put money into the system via personal taxes. To get company pensions you have to work for companies for a long time. To have funds to draw from personally, funds need to be put into government retirement plans.
Each country will have its own version of retirement tax break plans. They are usually based on putting aside funds in a tax-deferred fund so people don’t pay taxes on the income during their working lives. Instead, they take the funds that were put aside and take them out later in life when people aren’t working and getting an income. Taking out the funds usually means taking out only as much as needed. Those funds are usually less than during working years therefore taxes are lower.
How Do I Start?
Start by using a good Retirement app to figure out how much is needed. It is very difficult to figure out what will be needed as retirement is usually far off in the future but a start should be made and it can be adjusted over time. If you don’t have a good app then approach your bank and they will help you figure out what a reasonable goal is and a way to achieve it.
Contributions should be ramped up as soon as possible towards the monthly target designated by a retirement app.
Put any currently available funds into the government retirement plans then add contributions via automatic deposits.
Funds should be left to:
1. Accumulate and grow by regular contribution and compound interest or
2. Take some of the cash and invest in the market place via some mutual funds or ETFs.
After a while, the funds could be split into other funds and eventually some stocks if so inclined.
See links to sites for various countries or simply look up government retirement plans for specific countries.
KJ/DB