How long does it really take to save enough to retire?

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If you ask any financial advisor when to start saving for retirement, their answer would likely be simple: Now.

 

It’s certainly not easy prioritizing investing for retirement. If you’re in your 20s or 30s, you might have student loans or other goals that seem more “immediate,” such as a down payment on a house or your kid’s tuition.

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Related: How much money should you put toward your 401(k)?

What Age to Start Saving for Retirement

Setting aside a little every year starting in your 20s could mean an additional hundreds of thousands of dollars of accumulated investment earnings by retirement age. Retirement is often considered the single biggest expense in many peoples’ lives. Think about it: You may be living for 20 or more years with no active income.

 

Plus, while your parents or grandparents likely had a pension plan that kicked off right at the age of 65, that may not be the case for many workers in younger generations. Instead, the 401(k) model of retirement that’s more common these days requires employees to do their own saving.

 

To see where you’re heading with your savings you could use a simple retirement savings calculator. But here are more basics on how to get started on your retirement savings strategy, at any age.

Investing in Your 20s

The earlier you start investing, the better off you’re likely to be. No matter how much or little you start with, having a longer time horizon till retirement means you’ll be able to handle the typical ups and downs of the markets.

 

Plus, the sooner you start investing, the more time you’ll be able to benefit from compound interest; the returns you earn on returns that help boost your savings.

 

Starting to save for retirement in your 20s is definitely not an instant-gratification move, but it’s something you’ll be thanking yourself for the rest of your life. Start by setting a goal: At what age would you like to retire? Based on current life expectancy, how many years do you expect to be retired? What do you imagine your retirement lifestyle will look like, and what might that cost? Once you have those details in place, you can decide how much to start saving right now.

Investing in Your 30s

If your 20s have come and gone and you haven’t started investing in your retirement, your 30s is the next-best time to start. While there may be other expenses competing for your budget right now (saving for a house, planning for kids or their college educations) the truth remains that the sooner you start retirement savings, the more time they’ll have to grow.

 

If you’re employed full-time, one easy way to start is to open an employer-sponsored retirement savings plan, like a 401(k). We’ll get into details on that below, but one benefit to note is that your savings will come out of your paycheck each month before you get taxed on that money. Not only does this automate retirement savings, but it means after a while you won’t even miss that part of your paycheck that you never really “had” to begin with. (And yes, Future You will thank you.)

Investing in Your 40s

When it comes to how much you should have saved for retirement by 40, one general guideline is to have the equivalent of your two to three times your annual salary saved in retirement money.

 

Once you have high-interest debt (like from credit cards) paid off and have a good chunk of emergency savings set aside, take a good look at your monthly budget and figure out how to reallocate some money to start building a retirement savings fund.

 

Not only will regular contributions get you on a good path to savings, but one-off sources of money (from a bonus, an inheritance, or the sale of a car or other big-ticket item) are another way to help catch up on retirement savings faster.

Investing in Your 50s

In your 50s, a good ballpark goal is to have six times your annual salary in your retirement savings by the end of the decade. But don’t panic if you’re not there yet; there are a few ways you can catch up.

 

Specifically, the government allows individuals over age 50 to make “catch-up contributions” to 401(k), traditional IRA, and Roth IRA plans. That’s an additional $6,500 in 401(k) savings, and an additional $1,000 in IRA savings.

 

The opportunity is there, but only you can manage your budget to make it happen. Once you’ve earmarked regular contributions to a retirement savings account, make sure to review your asset allocation on your own or with a professional. A general rule of thumb is, the closer you get to retirement age, the larger the ratio of less risky investments (like bonds or bond funds) to more volatile ones (like stocks, mutual funds, and ETFs).

Investing in Your 60s

It’s never too late to start investing, especially if you’re still working and can contribute to an employer-sponsored retirement plan that may have matching contributions. If you’re contributing to a 401(k), or a Roth or traditional IRA, don’t forget about catch-up contributions.

 

In general, when you’re this close to retirement it makes sense for your investments to be largely made up of bonds, cash, or cash equivalents. Having more fixed-income securities in your portfolio helps lower the odds of suffering losses as you get closer to your target retirement date.

Different Types of Retirement Plans

Here are the most common types of retirement accounts and who can use them. This isn’t a comprehensive list of retirement accounts, so it might be a good idea to discuss retirement planning with a financial planner or accountant.

401(k) or Other Workplace Plans

401(k) is a workplace retirement account offered by employers. Typically, you contribute a portion of your paycheck, pre-tax.

 

One of the benefits of using your workplace’s retirement plan is that your company may offer a “match.” A match is when your company contributes to your account when you do. The median maximum employer match is 3%, according to the most recent data from the Bureau of Labor Statistics.

 

At the very least, you might want to contribute to take advantage of your match since it’s essentially free money. You don’t have to stop there, though; in 2022, the IRS maximum 401(k) contribution limit is $20,500, with an additional $6,500 catch-up contribution allowed for those older than 50.

 

These accounts are tax-deferred, meaning you pay income taxes when withdrawing the savings in retirement. One of the many benefits of using a 401(k) or similar workplace plan is that it lowers your taxable income. For instance, if you’re making $85,000 and you’re contributing $10,000 annually to your 401(k), then you’ll only be taxed on $75,000 of that income.

 

One of the downsides to a 401(k) is that withdrawing these funds early could trigger a 10% tax penalty in addition to income taxes. Other workplace plans include SIMPLE IRAs, 403(b)s, 457 plans, and Thrift Savings Plans. If you’re self-employed, you could consider opening a Solo 401(k) or SEP IRA.

 

Recommended: SEP IRA vs. Simple IRA

Traditional IRAs

An Individual Retirement Account or IRA is another account you may use to save for retirement. An IRA is an investment account that is not tied to your workplace. That makes a traditional IRA an option for those that are self-employed or freelancers.

 

Like a 401(k), a traditional IRA is tax-deferred and provides a place for your investments to grow free from capital gains tax. Because the money is taxed upon withdrawal at retirement, a traditional IRA also carries a penalty for early withdrawal.

 

Traditional IRA accounts have a much lower contribution limit than 401(k) plans: $6,000 in 2022, if you’re younger than 50. Those 50 and older can contribute $7,000 annually.

Roth IRAs

Like a traditional IRA, a Roth IRA is an account that you can open on your own, separate from your workplace. Both individuals covered by workplace retirement plans and those who are self-employed can contribute to a Roth IRA, although there are income limitations.

 

It’s possible to contribute up to $6,000 into a Roth IRA each year, although exactly how much is tied to your income. In 2022, a single person earning under $144,000 can contribute at least some money to a Roth IRA. For married couples filing jointly, the modified adjusted gross income must be under $214,000 in order to contribute some money to a Roth IRA. As income goes down, max contributions increase until they hit the $6,000 cap.

 

Unlike a traditional IRA and a 401(k), which are tax-deferred, a Roth IRA is tax-exempt. You pay income taxes on the money that is contributed to the account, but you can withdraw money tax-free in retirement.

 

Like all retirement accounts, Roth IRAs are free of capital gains taxes, or the levies charged on money you earn from profitable investments.

 

Recommended: What Is the Current Capital Gains Tax Rate?

What Is a Wealth Management Account?

Like a 401(k) or an IRA, a wealth account is also an investment vehicle. But unlike an account designed specifically for retirement, these accounts do not have the same tax benefits.

 

You might consider using a wealth account if you want to invest for a goal other than retirement, or if you’ve “maxed out” (contributed the maximum allowable amount to) your retirement accounts.

 

Because a wealth account does not have the tax benefits of a 401(k) or IRA, it also doesn’t come with the same early withdrawal penalties. Wealth accounts are often called “after-tax accounts” because you contribute and invest money you’ve already paid income taxes on, and you pay taxes on the capital gains when you withdraw your cash.

 

Just like checking and savings accounts at banks, these accounts can also have maintenance fees.

Investing for Retirement

Once money has been contributed to a retirement account, it’s time to invest that money. To say “saving for retirement” is a bit misleading; really, it can be considered to be “investing for retirement.” And you can invest within any of the above, mentioned accounts.

 

If you have a workplace plan, you may be given a list of mutual funds to choose from. To choose a fund, you might want to determine whether the underlying investment is appropriate given your goals and risk tolerance. The categories are usually stocks, bonds, domestic equities, foreign equities, or emerging-market stocks and bonds.

 

You may also want to consider the management fees of the fund, called the expense ratio. This is usually expressed as a percentage which is subtracted from the amount invested each year.

 

For those without a workplace plan, you might want to open a retirement account, fund the account with cash, and then invest the money. Investors can do this by signing up for a traditional brokerage account if they want to pick and choose investments themselves. They might also consider a robo-advisor, or computer-generated investing services.

 

Recommended: Are Robo-Advisors Worth It?

FAQ

Is 20 years enough to save for retirement?

It’s never too late to start investing for retirement. If you’re just starting in your 40s, consider contributing to an employer-sponsored plan if you can, so that you can take advantage of any employer matching contributions. In addition to regular bi-weekly or monthly contributions, make every effort to deposit any “windfall” lump sums (like a bonus, inheritance, or proceeds from the sale of a car or house) into a retirement savings vehicle in an effort to catch up faster.

Is it too late to save for retirement at 30?

It’s not too late to start saving for retirement at 30. Take a look at your budget and determine the max you can contribute on a regular basis, whether through an employer-sponsored plan, an IRA, or wealth management account (or a combination thereof). Then start making contributions asap, and consider them as non-negotiable as rent, mortgage, or a utility bill.

Is 30 too old to start investing?

 

No age is too old to start investing for retirement, because the best time to start is today. The sooner you start investing, the more advantage you can take of compound interest, and potentially employer matching contributions if you open an employer-sponsored retirement plan.

The Takeaway

Investing in retirement and wealth accounts is a great way to jump-start saving and investing for your golden years, whether you invest $10,000 or just $100 to get started.

 

The first step is to open an account or use the one that’s already open. You could also increase your contribution. If you’re opening an account, you may want to consider one without fees, which cut directly into your bottom line.

 

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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

 

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What happens to your debt when you die?

 

Do you know what will happen to your debt when you die? Some debts are forgiven while others may be passed down to heirs. Read on for the answers to some of the most frequently asked questions related to death and debt.

 

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In order to accurately answer this question, we need to examine the most common types of debt people accumulate. In other words: Not all debt is equal. The type of debt you have and when you accumulated the debt will determine how and if your debt is passed on to others when you die.

The Most Common Types Of Debt

 

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If you die with credit card debt, there are two things that may happen:

  1. Your debt may be forgiven and written off by the credit card company
  2. The debt will be passed on and the responsibility of a survivor

 

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If you are the sole owner of the debt when you die, (not married or a cosigner) the credit card companies will be involved in the probate process. The money left in your estate, any retirement accounts, or other items worth money will be sold and the outstanding debts will be paid.

If there is not enough money in your estate to pay off the remaining credit card balance, your children or beneficiaries will not be required to pay the remaining balance. The outstanding debt will be “forgiven” by the credit card company.

 

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If the credit card is a joint account with a living spouse or a cosigner, the other account holder will be responsible for the debt. If you have authorized users on the account but they are not the account owner, the users will not be responsible for the debt.

 

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This is one of those myths that continues to live on. Credit card debt does not go away after seven years. The confusion with the seven-year time frame comes from the credit report time requirement.

After seven years, old debts begin to fall off of your credit report. Your debt, however, is still very much alive and owed. Lenders can and will continue to pursue the amount owed until it is paid, settled, or charged off. Do not be fooled into thinking your credit card debt will go away after seven years.

 

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The quick answer? It depends. There are several factors that determine if a deceased spouse’s credit card debt will be passed along to the surviving spouse. If the credit card debt was incurred before marriage and the deceased spouse was the sole owner of the account, in most cases, the debt will not be the responsibility of the surviving spouse.

If the credit card debt was incurred after marriage and the deceased spouse was the sole owner of the account, the state you live in determines the surviving spouse’s responsibility. If you live in one of these community property states and the debt was incurred after marriage, the surviving spouse is responsible for the credit card debt of their spouse regardless of the account ownership:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

If you do not live in one of these states, generally the surviving spouse will not be responsible for the credit card debt if they were not a joint owner of the account. If you are a joint owner on the account, you are now solely responsible for the debt.

 

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Again, where you live determines what can happen to your medical bills when you die. Generally speaking, children and heirs will not be required to pay back the outstanding medical bills of their parents. With that being said, there are a couple of instances where a child could be responsible for the medical debt of their parents.

 

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When a child cosigns admission paperwork acknowledging financial responsibility if the adult is unable to pay their bills, this debt may be passed down to the child.

 

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There are 26 states that have filial responsibility laws that state a child may be responsible for a deceased parent’s medical debt in certain situations. The states that have filial responsibility laws are:

  • Alaska
  • Kentucky
  • New Jersey
  • Tennessee
  • Arkansas
  • Louisiana
  • North Carolina
  • Utah
  • Indiana
  • Nevada
  • California
  • Maryland
  • North Dakota
  • Vermont
  • Connecticut
  • Massachusetts
  • Ohio
  • Virginia
  • Iowa
  • New Hampshire
  • Delaware
  • Mississippi
  • Oregon
  • West Virginia
  • Georgia
  • Montana
  • Pennsylvania
  • South Dakota
  • Rhode Island

Now, before you become overly concerned about living in one of these states, understand that the enforcement of filial responsibility laws is extremely rare. If you have significant medical debt, consult with an attorney in your state to see exactly what responsibility your adult children may be required to pay back.

 

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Student loan debt may or may not be passed on to survivors when the borrower dies. What happens to the loan depends on what type of loan was taken out and when it was established.

 

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If you have federal student loans, they will be forgiven upon death. Federal student loans do not pass on to others as long as a death certificate is presented to the lender. Federal student loans that fall into this category are:

  • Direct Subsidized Loans
  • Direct Consolidation Loans
  • Direct Unsubsidized Loans
  • Federal Perkins Loans

 

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On Nov. 20, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was amended. The added section releases cosigners of a private student loan from financial responsibility if the primary borrower dies. Due to this, all new private student loans with cosigners are not required to repay the loan upon the student’s death.

However, student loans with cosigners taken out before Nov. 20, 2018, may still require the cosigner to be held responsible for the debt.

 

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Federal Direct PLUS Loans are also forgiven upon the student’s death. In the past, the parent who signed for the PLUS loan was required to bear the burden of the tax responsibility and file the forgiveness as “income” after a child’s death.

Currently, The Tax Cuts and Jobs Act of 2017, is in effect and releases parents from this tax responsibility. This tax stipulation remains in effect until the year 2025.

 

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There is several different scenarios involving vehicle loan debt upon the borrower’s death. If the auto loan has a cosigner or the vehicle was purchased in a community property state after a couple was married, the cosigner or spouse is responsible to repay the auto loan.

If the loan was obtained before marriage and is only in the deceased spouse’s name, generally the surviving spouse is not held responsible for the debt. The bank will take possession of the vehicle to settle the outstanding debt or the surviving spouse can pay off the vehicle loan.

If the borrower is not married, the survivors can either pay off the vehicle loan and keep the vehicle, sell the vehicle and pay off the loan or return the vehicle to the bank. Heirs do not inherit vehicle loan debt.

 

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Payday loan debt is very similar to credit card debt when you die. If there was not a cosigner or someone else listed as jointly responsible for the loan, then the company writes off the debt as a loss. Payday loan debt is not transferred to heirs but may be the responsibility of a surviving spouse if the debt was incurred after marriage in a community property state.

 

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In probate, the home must be paid off with the funds from the estate or the mortgage company must agree to let someone else inherit the loan. If you still owe money on your home, your spouse or heirs usually have three separate options:

Option 1: Sell the home to pay off the outstanding mortgage. The executor of the will can initiate a home sale to fulfill the outstanding debt obligations. If the home is not worth what is owed, additional money from the estate will be used to pay off the mortgage. If additional money is still required, the bank can take possession of the property.

Option 2: If there is enough money in your estate, your heirs can use that money to pay off the mortgage. Or the beneficiaries can use their own money to pay off the loan in full.

Option 3: If there is not enough money in the estate to pay off the loan, an heir may elect to contact the lender in an attempt to take over the loan. The loan would need to be transferred into the new borrower’s name which would require the heir to meet the credit obligations for a loan.

 

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Lenders can force the sale of a property to fulfill the outstanding equity loan balance if the estate does not have enough capital to pay it off. This is another scenario where the heir may be able to apply with the lender to take over the payments.

 

 

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If you have federal tax debt when you die, the IRS gets the first chance at your estate. Legally, the executor of the state is unable to pay any other debt or obligation until the federal tax debt is settled.

If a substantial amount is owed, the IRS will quickly put a lien on any property owned by the deceased in an attempt to satisfy the debt. The federal government will get their money one way or another – but the heirs will not personally be liable for the outstanding tax debt.

 

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There is not an automatic notification process when a person dies. The next of kin or executor of the state is required to contact the bank and provide a copy of the descendant’s death certificate.

When the death certificate is presented, the financial institution will freeze all of the associated accounts until the probate process is completed. If money is not owed to other lenders, the beneficiaries will be given access to any monies left in the deceased person’s accounts.

 

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Even though most debts will not be passed on to your heirs when you die, you may not want them to deal with the hassle of paying off all your debt with your estate – only to be left with nothing.

If you have struggled with debt your entire life, a cheap term life insurance policy may be an option to leave a small inheritance to your heirs. Most life insurance policies are dispersed tax-free and are not accessible to creditors.

 

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Leaving debt behind is a fear many seniors face. On the bright side, your heirs will usually not be personally responsible for paying off your outstanding debts. However, the sooner you can clean up your own financial mess, the better.

Do your best to start paying off your debt so your executor is not faced with a long probate process. If you need help getting started, check out this related post The Debt Payoff Playbook.

This article originally appeared on Arrest Your Debt and was syndicated by MediaFeed.org.

 

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