Read Time: 8 Minutes
Expertise Area: All Career Fields
Career Stage: All Career Stages
You may think, Retirement is not anywhere in the near future for you, so why worry about it now? Easy, the earlier you learn about it and start saving, the more interest you can accrue, and the more money you will have set aside for retirement when the time comes. With the rising cost of living, you should start thinking about investing right now.
The secret to retirement, is starting to save early.
According to an article by Vanguard the secret to retirement, is to start saving early.
It is known that to live comfortably during retirement, you should have 85% of your preretirement pretax income each year when you retire. So, for a person earning $50,000 per year, that’s $42,500 each year. Now, let’s say that same person lives for another 30 years after retirement, that means they will need $1.275 million saved for retirement!
For example: Let’s assume that you’re 20 and just starting to save for retirement. If you make $50,000 per year and would like to retire at age 65. With an investment rate of return of 6% (which is conservative), you will need to save only $350 per month to reach your $1.275 million goal.
However, if you decide to start saving for retirement at age 40, you can still reach that goal; you’ll just need to save more each month. If at 40 you decide to start saving, and you make $50,000 per year and would like to retire at age 65, with an investment rate of return of 6% (which is conservative), you will need to save $1,515 per month to reach your $1.275 million goal.
So, you see, the secret to saving is compound interest. The earlier you start, the more interest is accrued over time, leading to more money saved for retirement. However, it’s NEVER too late to start! Use this retirement calculator to see where you stand.
What you save now will determine your future quality of life. However, we know the reality is that for so many beauty professionals, saving for retirement can be challenging. Since many beauty professionals work for themselves or for a small salon, they do not have a company retirement plan to support their retirement efforts. And then, as we all know, life hits—and other bills take priority over saving for retirement.
We asked two professionals in our industry if they feel they adequately prepared themselves financially for retirement. Here are a couple of their responses:
- Kym responded, No way! Trying to make up for lost time, start your IRA’s now!
- Shaunna said, I started early in my career, but life happened that created a setback, and [I’m] finding it hard to establish that place again. She also gave a few tips to current students. Think realistically, set goals, and break them down into small tasks. Save tips and invest them in a way that will bring in more income. Some learners are making hair and skin products and creating client survival kits for home maintenance care. Some students sell hair extensions and clothes. They actually work towards a savings for their future.
You may feel a little lost and nervous about your financial outlook during retirement, so you brush it under the rug and try to forget that this is something you have to actually think about. Even if time has crept by and you have very little money saved, or if once upon a time you had a comfortable savings but dipped into it and exhausted it all, don’t fear. You can and should start saving again. There are many savings options available. No matter where you start, make financial planning around your retirement easier with these few steps:
Start Thinking About Saving
Even though the more you can save, the better, you don’t need thousands of dollars, or even hundreds of dollars to start saving. You can start saving with any amount you choose. You just need to find out what you can cut out of your current budget, how much you can save per paycheck or per month, and commit to that amount. Your initial investment may not seem like it will do a lot at first, but as your money grows and accumulates interest, you may be able to transfer it into stronger investment options. The big key is to set an amount that you want to save, make regular and consistent deposits, and make the commitment not to touch your retirement funds under any circumstances.
Learn the Different Retirement Options
There isn’t one “right” way to start your retirement savings. The only right thing to do is to learn your options, find the one that is right for you, and commit to it. There are many different options out there, including the following:
Social Security is a government retirement plan that was set up in 1935. According to the Social Security Administration, it will likely provide about 40% of the income that you need for a comfortable retirement. See more information on Social Security, here.
According to Fidelity, an IRA is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis. The three main types of IRAs are:
- Traditional: You make contributions with money you may be able to deduct on tac return, and can grow tax-deferred until you withdraw on them in retirement.
- Roth: Make contributions with money you’ve already paid taxes on, and your money will grow tax-free, with tax-free withdrawals (barring conditions are met).
- Rollover: Contribute money that is rolled over from a different retirement plan such as a 401K.
IRAs are a good investment because, as stated above, you may need up to 85% of your preretirement income in retirement. So, Social Security and a company retirement plan (if your company offers one) may not be enough to sustain you through retirement.
Company Retirement Plan:
Some companies, no matter the size, offer retirement plans. Whether this being a match percentage to your 401(k) or other various methods, talk to your supervisor to find out if this is a benefit offered at your salon.
To make it even easier for you, you no longer need a degree in finance or a job on Wall Street to start investing. Many platforms are making investing easy and giving individuals a fighting chance to create a promising financial future. Here are some to research.
This platform was designed with women in mind. It’s changing the game for women interested in securing their financial futures. The platform considers your earnings as a woman over your career and factors them into investment plans that offer a better chance of you reaching your goals. You can invest how much you want, with tailored recommendations.
This platform is hot among millennials right now. The stock brokerage allows customers to buy and sell U.S.-listed stocks and ETFs with zero commission. According to their company website they believe “…everyone should have access to the financial markets and are on a mission to inspire a new generation of investors.” Robinhood is currently available on iOS and Android.
The most important thing to remember when it comes to retirement savings is to get started. It doesn’t matter how early or late you start, as long as you start today! Don’t let your current situation hold you back from investing in your future. No matter how things look now, they will change. Ask questions, share your goals and ask for clarity. Talk to the bank about interest and what your money could potentially look like in a few years. There is nothing to be embarrassed about. Remember, you are making a powerful decision to invest in your future. If you are already off to a healthy start investing for your retirement, kudos to you. Keep up the good work and save even more.
RISE Certification in Finance Fundamentals4 Courses
Get your Milady RISE Certification in Finance Fundamentals to learn how to read financial statements and identify key areas in your business that you can control. Every beauty professional wants to have a truly profitable business—let's achieve it!
How to Pitch Like a Pro
Course Two from the Media Pitching Series by Milady & Stephenetta (isis) Harmon. By the end of this course, you will be able to craft a story that writers are actually interested in and want to share.