Retirement
2:15
How To Start Saving for Retirement | Retirement Saving Explained
Learning how to save for retirement can feel daunting, but in this video, Titan's Christopher Seifel teaches you how to start saving for a rainy day.
Video Transcript
So, learning how to invest for retirement can feel daunting, but you don't need to know everything to create an effective retirement investment plan. Understanding the basics of retirement accounts and the different investment options is a good place to start. It can be helpful to look at how investing differs from putting money in a savings account, especially when you account for how compound interest earning interest on interest, can boost your money's growth over time. Let's walk through what happens if you contribute, say, $250 a month to a savings account that offers 3% annual percentage yield or APY versus an investment account that earns an average of, say, 10% per year in the stock market. This is a pretty realistic estimate based on average stock market returns over time. So, after 40 years you'd have roughly $226,000 if you just put your money in the savings account, but you'd have over $1.3 million if you invested in the stock market.
This is the power of compound interest and the true power of saving for retirement and doing it early. The sooner you start, the more time you have for your money to grow. So, how much money should you save? It can be difficult to determine exactly how much you should contribute to your retirement investment accounts each month or year, but one general rule of thumb is to invest 10% to 15% of your annual income before taxes for retirement. However, you may want to aim for a higher rate if you're starting later in life.
You might be able to set aside less of your money if your employer also contributes to your retirement account. The amount you invest for retirement may also vary depending on a variety of different factors. For example, your age and when you want to retire, the lifestyle you want in retirement, your current investments, your expected returns on your investments and additional income during retirement, such as Social Security and rental income. Some people start with what they can afford today and try to increase their contribution amount by 1% every six months or year. They may make a larger jump in their savings rate after getting a new job or a raise. The key is just getting started early and letting compound interest do its thing.
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