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177 MG Three Cheap Ways to Save for Retirement

Even though retirement may be a long way off, if you start using simple financial tactics now, rather than later, you'll be able to retire when you want and do what you want.

Broadcast on:
09 Jun 2010
Audio Format:
other

Even though retirement may be a long way off, if you start using simple financial tactics now, rather than later, you'll be able to retire when you want and do what you want.

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Maybe you want to do a lot of traveling or move to that beach house you always wanted. Unfortunately, your retirement dreams won't become a reality without proper planning and preparation. In this post, I'll give you three important tips about how to prepare for a blissful retirement the cheapest way possible. Life can throw lots of problems at us, therefore, I preach hoping for the best, but planning for the worst. Even if you sock away a reasonable amount of money for the future, unexpected financial challenges can be a roadblock to retirement. A disability, chronic illness, or legal battle, for instance, could leave you swimming in debt and be a real drain on your retirement funds. It used to be that workplace pensions, the kind where an employer guarantees you a set amount of income for the rest of your life provided a nice cushion. But those types of retirement benefits are on the endangered species list. What about Social Security? Wasn't that created to guarantee us some level of, well, security? It's important to understand that the 75-year-old program was created to be a supplement for retirees, not a sole source of income. However, close to 25% of all retirees who receive Social Security benefits live on that check alone. As the program gets closer to paying out more money than it takes in, the future for Social Security doesn't look good. So, how do you make sure that you'll have enough money for retirement? The average American will need enough to live on for 20 years after they end their primary career. Here are three ways to bridge the gap between today and your dream retirement with as little pain and expense as possible. Number one, start saving early. Number two, take on as little debt as possible. And three, never take early withdrawals from your retirement savings. I'll explain each of these tips with some examples so you'll fully understand their power. Let's start with saving early. It's so important to get a jumpstart on your savings because the sooner you begin, the more time your money has to compound or grow. You can actually save less total money and still have a massive retirement account if you let father time work for you. And by the way, saving early doesn't mean starting a few years before you want to retire. Early means as soon as you start earning money. If you haven't already heeded this advice, it's never too late to get on a better financial path. Consider this example. Early Elena starts investing $200 a month when she's 25 years old. She puts money in a pretty humdrum index fund that averages an 8% annual return. When she's 70 years old, she'll have an impressive $1.06 million to fund her retirement lifestyle due to the incredible power of compounding interest. Nice. But her friend, late Larry, doesn't get on the savings bandwagon until he's 35. He also puts $200 in the same fund that Elena invests in each month. But when Larry's 70, he'll only have $460,000. Okay, but not so nice as having over a million dollars. By procrastinating saving $200 a month for 10 years, Larry invests $24,000 less than Elena. But that gap ends up costing him $600,000 in retirement. Did you get that? Delaying investing for 10 years means that Larry will have $600,000 less to spend in retirement than Elena. I don't know about you, but the idea of investing $24,000 over a 10-year period to have an extra $600,000 in retirement is well worth it to me. When it comes to investing for retirement, the early bird gets handsomely rewarded. The second tip that I mentioned for the best way to prepare for retirement is to take on as little debt as possible. That's because paying interest on debts like credit card balances, payday loans, and car loans is expensive. Financing any purchase drastically increases its cost, and that leaves you with less money to save or invest for your retirement. 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Get IXL now, and money girl listeners can get an exclusive 20% off IXL membership when they sign up today at ixl.com/moneygirl. Visit ixl.com/moneygirl to get the most effective learning program out there at the best price. At Credit Union of Colorado, banking doesn't have to be like this. Big national banker here, just saying we'd like to apologize to you for that thing we did. Was it selling your information, canceling your personal loan? Who can say? That's for the lawyers to figure out. So just know, it's not going to happen again, until it does, again. At Credit Union of Colorado, we have better interest rates and seamless mobile banking. All while having a heart, Credit Union of Colorado, honestly, good. Learn more at honestlygood.org, federally insured by NCUA. This is an ad from BetterHelp. Unfortunately, we don't get an owner's manual for ourselves. There are no simple instructions for what to do when we feel down, or when we have relationship problems or family conflicts. That's when therapy can help, and BetterHelp is a convenient way to get started. That's 100% online, flexible, and surprisingly affordable. Connect with a licensed therapist by phone, video, or online chat at a time that works for you. Visit BetterHelp.com to learn more. That's BetterHELP.com. Here's an example. Let's say you buy a car for $25,000 and finance it for six years at a 10% interest rate. The total price you'll really pay for the car is over $33,000, and that's if you have decent credit. If you have poor credit, your interest rate could be doubled, which means that same car could cost you $43,000 or more. Even when you buy something on a credit card, like a suit for work, you could end up paying double or triple the amount for it, depending on your card's interest rate and how long it takes you to pay off the balance. Paying unnecessary interest is just like tearing up your cash and throwing it out the window instead of saving it for your future. My third retirement tip is to never take an early withdrawal from your retirement savings. That's especially true when you invest in tax-advantaged accounts, like IRAs, 401ks, or 403bs, because they impose an early withdrawal penalty. Not only will you end up with less to spend in retirement when you withdraw those funds, but you'll have to pay the government a 10% penalty. Ouch! Again, that's money that could go toward your financial security instead of watching it evaporate from your retirement account. And one last quick and dirty tip that you've heard me say before if you're a regular listener is to always participate in a retirement plan offered at work. Plans like 401ks and 403bs have high contribution limits or convenient have great tax breaks and may give you some free money if you're offered matching funds by your employer. All those great benefits can make a big difference in the amount you'll accumulate over time. And if you don't have a workplace plan, IRAs are the next best way to go. Be determined and committed to make sure that you'll have enough to fund a great retirement. I hope you know that there are other ways to get more money tips, news, resources, and advice from me. Of course, there's the MoneyGirl Facebook page and my Twitter feed, but now you can get the weekly MoneyGirl newsletter. It has tips and extra content that you won't find on the podcast. Simply go to the blog at moneygirl.quickanddirtytips.com and hit the subscribe button on the top right hand side of the page. You'll find direct links to my Facebook and Twitter pages on the blog too. I'm glad you're listening to change. That's all for now. I'm Sarah Rafferty and I play Donna Paulson on Suits. And we have a podcast called Sidebar, where every week we watch and discuss an episode of the show. Because here's the thing, neither of us have really watched it. That's true, at least in full-mount. So we're going to cover online seasons, share behind-the-scenes stories, and share and talk to our co-stars and friends like Gina Torres and Erin Korsch. So look, if you love Suits, amazing. This podcast is for you. And if you've never watched Suits, also amazing, you can join us and we'll watch it together. I think we're going to have a lot of fun. You can find Sidebar on the SiriusXM App Pandora or wherever you get your podcast. Don't forget to follow the show so you never miss an episode. At Credit Union of Colorado, banking doesn't have to be like this. Big National Banker here, just saying we'd like to apologize to you for that thing we did. Was it selling your information, canceling your personal loan? Who can say? That's for the lawyers to figure out. So just know, it's not going to happen again. Until it does. Again. At Credit Union of Colorado, we have better interest rates and seamless mobile banking. All while having a heart, Credit Union of Colorado. Honestly, good. Learn more at honestlygood.org, federally insured by NCUA. [BLANK_AUDIO]