Many people retire exceptionally poor because they fail to save up for their retirement and carry consumer debt well into their 40s. If you can become debt free and start saving up for retirement in your early 20's your interest on savings will likely have over 40 years to compound.
What are the best ways to start saving? Make sure any high interest credit card debts are paid off and then contribute to your 401K and a Roth IRA. Smartmoney reports:
One of the first things all employees should do, Lee says, is find out if their employer offers a company match. If they do — and currently that's the case with about 85% of employers, according to the Profit Sharing/401(k) Council of America (PSCA), an industry trade group — be sure to make the most of it. The company match is in essence free money: For each dollar an employee contributes, the employer makes a matching contribution. Currently, the most common match is 50 cents per $1.00 up to the first 6% of pay, according to the PSCA. So in that case, one would be maximizing their match if they contribute 6% of salary, this way getting a 3% company contribution. (If one contributes 4%, the matching contribution would be just 2%.)
But don't stop there. If you can still squeeze some additional savings out of your budget, consider a Roth IRA. Contributions made to these accounts are made with after-tax dollars, but qualified withdrawals taken during retirement are completely tax-free, making this one of the best ways to save for one's golden years.
Learn more by reading Earning an A in Retirement Planning.
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