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How to start saving for Retirement

How To Start Saving For Retirement

How Much Money Do I Need to Invest for Retirement



When it comes to personal finance, saving, and investing, there are a lot of "it depends" or "your situation may be different." I daresay that saving for retirement is not among those - unless you are one of the very fortunate few to be independently wealthy, setting aside money today to see that you have enough for the years down the road is mandatory.

Unfortunately, inertia can be a powerful force and going from "not saving" to "saving" can be daunting to most people. Making matters worse, so much of the investment and financial advice out there is designed for people who've already crossed the Rubicon and started saving and investing for the future. What we hope to do here, then, is outline some strategies for starting the process.



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Saving Is Not Optional

Saving is Not Optional



Hopefully anyone who is reading this column is already on board with the idea that saving money is not an optional exercise. Nobody knows what Social Security will look like in a decade or more, nor how those benefits will compare to the actual cost of living - simply consider the debate today over using chained CPI and what that could mean to the value of future benefits.

It's also important to note that the government (and many businesses) offers incentives to save, and there's no way to get these back if you don't take advantage of them. If you set aside money into an appropriate retirement account (like an IRA or 401(k)), you not only get a lower tax bill in that year, but the money you save can build up tax-free for decades. Likewise, many companies will kick in extra money if you save for retirement - this is free money from your employer that you won't get otherwise, so do what you can to maximize this. After all, if you don't take advantage of this you're basically handing money back to your boss.

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The Problems of Starting Out

The Problems of Starting Out



In my experience, one of the biggest problems people encounter when they try to start saving is the belief that they don't have enough money as it is, let alone any left over to save. While I don't mean to appear to be lecturing those who are legitimately struggling to get by, I do believe that too many people ignore the fact that paying yourself should be every bit as much of a priority as paying other people. I'm not suggesting defaulting on loans or letting bills go past due, but if you don't take care of yourself, who will?

It's also important to just accept from the beginning that there will be challenges as you start. There will be months where you come up a little short and don't have as much to save. You will also find that your investment choices are pretty limited and that many people won't want to deal with your money because there's not much of it. Don't be discouraged - save as much as you can as often as you can.

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Starting Investing with Small amount

Starting Investing with Small Amount



It is absolutely true that the personal finance industry is set up to cater to those who have considerable wealth - virtually every bank and brokerage would rather deal with 10 millionaires than 10,000 people with AED1,000 each. But your savings and retirement plans should not be based upon what they want or what's convenient for them, but rather what meets your needs.

To that end, even AED250 or AED500 in retirement Investment savings is a worthwhile start. Any Investment is savings, and saving even relatively small amounts of money establishes the habit and the process. There are multiple brokers now that offer no-minimum, no-fee retirement accounts and you can get $25 or $50 deducted from your account every month and sent into that retirement account. Sure, this isn't going to buy you a villa in France for your retirement, but you are establishing good habits and you ARE saving.

Make sure to take the time to make a good selection. Most, if not all, firms charge fees for transferring accounts and you don't want to whittle away your money by switching firms repeatedly. Don't worry about firms that boast of the tools they offer traders; you won't be trading that much. What you should instead focus on is low fees/commissions and a wide selection of funds and ETFs.

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Be Realistic About Risk

Be Realistic About Risk



Those who are just starting off saving for retirement also need to think about investment risk. While academics and investment professionals struggle to define and measure risk, most ordinary people have a pretty clear understanding of it – what is the chance that I'm going to lose a substantial portion of my money (with "substantial" varying from person to person)?



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