Should I wait a year to start saving for retirement? | Business news

Retirement may be decades away for you, but you know it’s an important goal. You were all ready to make 2022 the year you finally started saving, and then record inflation and increasing chatter about an impending recession hit. Now you’re wondering if it’s a good time to put your savings into the stock market.

The answer depends on several factors, including your overall financial situation. We’ll talk about everything below so you can choose the best move.

Retirement should not be your top financial priority

Pension this is really important to many people, but your daily financial security should come first. You need to make sure that you have enough money to cover the necessary bills. This includes predictable monthly expenses as well as bills that come once or twice a year.

Then you need to build emergency fund if you don’t already have one. At a minimum, you should set aside at least three months of living expenses, six or 12 months is even better. It is up to you to decide what is convenient for you.

If you already have an emergency fund, review it now. As inflation increases costs, your current emergency fund may no longer be sufficient. Consider increasing it slightly to account for rising costs.

Make sure you do these things before you put money away for retirement. Failure to do so can lead to serious problems if an unexpected bill arises. You may have to divert money from your retirement savings, and you may face long-term debt problems if you have no other way to cover these unexpected expenses.

When you’re ready, don’t let the market scare you

Once you take care of your bills and emergency fund, you can turn your attention to retirement savings. You may be wary of investing now for fear of an imminent recession, but don’t let that stop you. Investments always have risk, even in good times. And over the long term, most people see their portfolios doing pretty well.

Also, delaying retirement can make your job more difficult when you start. Let’s say you’re 25 years old and want to save $1 million by age 65. You could do this by saving $403 a month if you earned an average annual rate of return of 7%. But delaying your retirement savings for just one year means you’ll now have to put away an extra $30 a month. It may not seem like much, but over the course of your career, you’ll end up saving more than $14,000 more than you would if you started saving at age 25.

If you are worried about losing money in the near term, it is best to use the strategy named dollar cost averaging. Here, you put away a certain dollar amount on a schedule, such as a percentage of your paycheck each pay period. Sometimes you will buy when stock prices are high; other times you will buy when prices are low. In the end, you will pay the average amount.

Dollar cost averaging can also help you avoid emotional decision making, which is useful all the time, but especially during a recession. You can often automate your contributions, and once that’s done, there’s usually no need to check your portfolio every day. The daily ups and downs shouldn’t matter much to you when you’re decades away from retirement.

Focus on making regular contributions over time. Consistency is the key to building a nest egg that will see you through the rest of your life.

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