It’s Never Too Early to Start Saving for Your Retirement

Whether you’re just starting your career or have been working for several years, retirement can seem a long way off. In fact, you likely have other priorities for your money—from making a dent in your student loans to saving for your kids’ education, putting together down payment on a vehicle, or let’s face it, going on a dream vacation. But the truth is even if you have a while until retirement, the time to start saving is right now. It’s never too early—or too late—to start saving for retirement.

What About Social Security?

The first thing to remember is almost everyone is going to need savings to supplement their eventual Social Security payout. While everyone hopes the system remains solvent, there is no telling what might happen in the years to come. And, even if you were able to withdraw the maximum as of today, it might still not be enough to live comfortably.

While your benefit is based on how much you paid into the Social Security system throughout your career, you are not going to receive the same amount you put in. According to AARP, here is the maximum Social Security benefits someone can receive in 2020 (subject to a maximum family benefit as well):

• File at age 70: $3,790
• File at full retirement age (currently 66): $3,011
• File at age 62: $2,265

As you can see, this is why it is so imperative to save additional money to ensure a better standard of living.

Why Saving Earlier is Better

The earlier you start saving, the better—not only will you amass more money, but you’ll actually have to save less overall. That’s the magic of compound interest, which is the phenomenon that happens when your investments generate interest, then you earn further interest on that interest, helping your account grow. And that is why it is important to start saving when you are young—when time is on your side.

Where Should I Save?

Many people put off saving because they are not sure where to start. If you just have money sitting in the bank, you are likely missing out on growth. That’s because even though the stock market can be volatile from day to day, historically over time, it has always rebounded. Simply stated, it’s important to take advantage of the possibility of seeing your money grow when your time horizon is long—you have plenty of time to weather the inevitable ups and downs and make money over the long run.

So while it doesn’t matter so much where you save as long as you save, here are some financial vehicles to research to see if they are right for you.

401Ks: This is the first place everyone should start saving if they have access to one through your employer. The reason it’s so desirable is because it uses “pre-tax” dollars, which means you don’t have to pay taxes on the money that is invested in your account. In addition, many companies offer what’s called an “employer match” as a way to encourage participation. This means they will match a percentage of the money you put in; for example, if you contribute 8% of your salary, they might match 4%. In that way it is essentially free money, and every employee should save at least up to the match amount to get this valuable benefit.

IRAs: IRAs come in two types. The first is a traditional IRA which is “tax deferred,” meaning you can deduct the amount of your contributions now, but you’ll pay taxes when you withdraw the money. By contrast, the Roth IRA is “tax-exempt,” which means that you will pay taxes now according to your current tax rate, but the account can grow tax-free. However, there are certain income limits. For more on traditional and Roth IRAs and their limits,visit the IRS website.

Mutual Funds and Index Funds: These are two more investment vehicles that are somewhat related. Both are portfolios which include a range of different investment types, so you, as a small investor, can own a lot of different types of stocks. The difference is mutual funds are actively managed by a professional, which means someone is making decisions on what stocks to buy or sell, while index funds are “passively” managed. This means they are designed to just match or track a market index, like the S&P 500, and generate returns that are the same as that stock index.

When you’re just starting out, it’s smart to talk to an investment professional about the choices which are best for you. Everyone has different financial situations, goals, appetite for risk, ability to absorb fees and time horizons. To sit down with a Valley Strong Retirement & Wealth Management Advisor* and discuss your options, simply call 661-833-7730 or contact us today! 

Securities offered through LPL Financial, member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. The investment products sold through LPL Financial are not insured Valley Strong Credit Union deposits and are not NCUA insured. These products are not obligations of Valley Strong Credit Union are not endorsed, recommended or guaranteed by Valley Strong Credit Union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.

Valley Strong Credit Union and Valley Strong Retirement & Wealth Management Group are not registered broker/dealers and are not affiliated with LPL Financial. Valley Strong Credit Union has contracted with LPL Financial to make non-deposit investment products and services available to credit union members.