Q. I am just out of college and with a annual salary of $30,000, I cannot afford saving for my retirement. What should I do now?
A. How about $1 million dollars at the time when you retire, will that give you enough incentive to start saving?
Here are the details, it should be painless to implement for most people -
If you just save 6% each month from your pay, it will be $150 a month to your 401K. Most employers offer a match to employee 401k contributions, let's say the match is 50% up to 3% of your pay, it will be $75 contributed by your employer.
There is more - as retirement money is pretax, assume you are in the 15% tax bracket and state income tax of 3%, your $150 per month pre-tax saving will reduce your tax bill by $23 at the Federal level and $5 at the State level.
Assume you can get annual salary raise average 3% each year, and assume your retirement can achieve average annual growth rate of 8% (which requires the portfolio to be an aggressive portfolio with 70% weight in stocks), in 40 years, your account balance will reach $1M!
How to fund the $150 per month saving? Bring your own lunch, find a roommate, save the gym membership fee, use an used car, cut the cable cord, ... you should have no difficulty to find the sources if you really want to!
A. How about $1 million dollars at the time when you retire, will that give you enough incentive to start saving?
Here are the details, it should be painless to implement for most people -
If you just save 6% each month from your pay, it will be $150 a month to your 401K. Most employers offer a match to employee 401k contributions, let's say the match is 50% up to 3% of your pay, it will be $75 contributed by your employer.
There is more - as retirement money is pretax, assume you are in the 15% tax bracket and state income tax of 3%, your $150 per month pre-tax saving will reduce your tax bill by $23 at the Federal level and $5 at the State level.
Assume you can get annual salary raise average 3% each year, and assume your retirement can achieve average annual growth rate of 8% (which requires the portfolio to be an aggressive portfolio with 70% weight in stocks), in 40 years, your account balance will reach $1M!
How to fund the $150 per month saving? Bring your own lunch, find a roommate, save the gym membership fee, use an used car, cut the cable cord, ... you should have no difficulty to find the sources if you really want to!
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