There are many options for you to consider in investing your retirement savings dollars. In determining where your funds might be best placed, consider how long you have until you retire and the level of risk you are willing to take. If you are working with a retirement advisor, make sure the advisor is aware of when you hope to retire and what your long-term goals are. Below are some common types of investment opportunities.
Start Tracking Your Expenses
With your set expenses out of the way, it’s time to track your discretionary expenses — those items you make a decision on every month. One example is how much you spend on food. Some months you may spend more on eating out or snacks. Write down the dollar amount you spend, WHEN YOU SPEND IT. Write down what you spent the money on. Keep it simple. Your entries may just be, “$1.45, coffee.” The point is to track your spending habits. If you go to the gas station and buy other items besides gas, your diary entry may be, “$18.50, gas; $4.50, snacks.” If your child asks for money for a school expense, your diary entry may be, “$5, John-school.”
Examine Your Spending Habits
At the end of your tracking period, take a highlighter and mark those expenditures that are not essential. Non-essential purchases mean those things that you decide you could have lived without. For example, if you didn’t need to buy the giant 32 oz. soda, highlight it. Rank-order the items you’ve marked as non-essential. If you had to give something up, what would be the first thing you would cut? Mark that item with a number one. Continue through your highlighted list and number the diary entries from those you would cut first to those you would cut last.
Take a Look at Spending Some of the Money you Highlighted
Depending on where you place your retirement savings, the interest you’ll earn on that money can begin to impressively add up over time. (See box, other side.) When you put money away for retirement savings, you are usually investing your money in a fund or plan where it will be kept for many years. For example, if you put away $50 each month for 25 years and that money earned 8 percent interest, you would add almost $50,000 to your retirement nest egg.
Pay Yourself First
If you have a workplace plan available to you, you may be able to have money automatically deducted from your paycheck into the retirement plan. Talk to your employer about what your options are. An automatic deduction makes it easier for you to “pay yourself first” before you’re tempted to spend the money on other things. Also, depending on the plan, your money can be put aside before you pay tax on your income. If you’re working to just begin a savings account, consider having a savings deposit automatically withdrawn each month from your checking account. Select an automatic savings withdrawal date that is just a day or two after your paycheck is deposited.
Determine Where Your Savings Should be Invested
Participating in a workplace retirement savings plan is the easiest option for most people. However, if you don’t have a plan available to you at work, check with the community or professional organizations you are a member of. One membership benefit may be the availability of retirement savings plans. Other resources include local financial institutions. Vermont’s Department of Financial Regulation maintains an on-line database that you can search to locate businesses in Vermont that offer retirement savings products.
Watch your Money Grow
Keep in mind that the money you are saving and investing now will be earning income for you until you withdraw it. As your money grows, consider setting specific goals for your retirement. Write down some of the things you hope to do when you retire. Envisioning these positive long-term goals can be a powerful way to motivate you to continue saving for your future.
Need More Resources?
Make sure to visit the other sections dealing with savings: