Simple steps to build your retirement savings

Planning for retirement may seem farther off than it actually is, and many people may not be fully prepared to handle their living expenses after their career is over. Recent Federal Reserve data shows that 67% of adults have some form of retirement asset, including pensions, which means 1 in 3 Americans has no dedicated retirement savings at all.

As we observe National Financial Planning Month, there is no time like the present to start planning, investing and saving for retirement. Use these basic investment concepts and simple strategies to start building financial security for the future.

Saving vs. investing

While both are important, saving and investing play different roles. Think of saving as setting money safely aside in a savings or money market account for unexpected medical bills or car repairs and eventual expenses, such as a down payment on a home or a new car. Think of investing as money to be saved and potentially grow over time to meet future expenses, such as education or retirement.

Plan now

People are now living longer. Retirement can last 20 years or more, while programs like Social Security are expected to play a smaller role for younger generations. While investing does not eliminate risk, not having a plan could mean not having enough for retirement.

Build a solid financial base with the basics

Before investing, understand and organize your finances:

• Know your net worth: Compare what you own to what you owe.

• Understand your cash flow and expenses: Track where your money is going each month.

• Reduce high-interest debt: Every dollar saved in interest is a dollar that can go toward future goals.

• Expect the unexpected: Establish an emergency savings fund and make sure you have sufficient insurance coverage.

Use your tools wisely

For many people, long-term planning is built around three major tax-advantaged accounts: The 401(k), the IRA and the Health Savings Account (HSA). According to Gallup retirement savings polling data, about six in 10 Americans report having money invested in a savings plan such as a 401(k), 403(b) or IRA.

• Employer-Sponsored Accounts: These plans are often the easiest way to begin investing. Traditional 401(k)s offer an upfront tax deduction, while Roth 401(k)s offer tax-free withdrawals in retirement. One of the biggest benefits is the employer match, so contribute at least enough to receive the full match, and consider increasing your contributions by 1% each year or whenever you receive a raise.

• IRAs: A Traditional or Roth IRA offers flexibility and a wider range of investments. Traditional IRAs allow for tax-deductible contributions, while Roth IRAs provide tax-free growth and withdrawals in retirement. Contribution limits are separate from your 401(k), making IRAs a great supplement to employer-provided plans.

• HSAs: For those enrolled in a high-deductible health plan, the HSA can be a flexible “triple-tax-advantaged” retirement tool to cover future health care costs. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. After age 65, funds can be used for any purpose, though they are taxed if not used for medical needs.

The importance of compounding

Compounding is the process of earning interest on your interest, and it rewards patience, meaning that even small contributions can grow significantly over decades. Early on, growth may seem slow, but as the balance increases over long periods, growth can become more significant.

Review, adjust and ask a professional

Investment planning is not a one-and-done task; it’s an ongoing process. Review your plan at least once a year, monitor your progress and make changes as your goals or income change.

Creating an investment plan to help meet your retirement savings goals does not require much money or a finance degree, but it does take dedication and discipline. Investing shouldn’t be a solitary pursuit, either, so ask a financial advisor to review your plan and make sure you are on track to meet your goals.

Justin Giles is a senior client advisor, VP for Arvest Wealth Management – Springfield Region. He can be reached at hgiles@arvest.com.

This article originally appeared on Springfield News-Leader: Simple steps to build your retirement savings