When it comes to retirement planning, most Americans have a shortage of knowledge in the subject area. When CBS News asked consumers how much they’d need to save for retirement, the median answer among Americans was $300,000.
Unless you plan on working until you’re 80, which 30 percent of people say they do, you will run out of money before the end of your lifespan. Helga Cuthbert is a certified financial planner and the principal of Cuthbert Financial Guidance in Decatur, Georgia. She says this 30 percent group is taking a big risk as this ideology “assumes there will be a job available and that they will physically be able to work at the age of 80.”
With all the monthly bills, combined with the unplanned expenses you have, you may not have a whole lot of extra money and retirement may be something you plan on simply worrying about later. Young people, in particular, place retirement on the back burner. “The earlier [people] start, they place themselves in a better position … and don’t have to save as much later. … They don’t have to play catch up in their 30s and 40s,” says Cuthbert.
How would you rate your retirement knowledge? Find out by answering these questions.
1. At what age should you start saving for retirement?
Cuthbert suggests you start saving “as soon as you have earned income [from a career].” Say, for instance, you begin placing $5,000 per year into a traditional IRA at age 25. By age 65, your IRA will be worth nearly $1.1 million before taxes – 550 percent of your total contributed amount.
On the other hand, if you wait until age 40, you end up with an IRA worth around $340,000 (before taxes) — 272 percent of your total contributed amount.
“Young people seem to understand financial independence, but for many, retirement is an alien concept. … Starting early allows time for interest to compound,” says Cuthbert.