Retirement Planning: What You Need to Know
Retirement is an exciting milestone in everyone’s life. It's a time many of us envision as stress-free, relaxing, and fun! However, according to a recent study by the Employee Benefits Research Institute, just 21% of workers feel confident that they will have enough money for a comfortable retirement. Whether you’re just joining the workforce or have been working for 30+ years, it’s crucial to make retirement savings a priority and establish a plan. Not sure where to start? Here are a few things to consider when planning for a secure retirement.
Time is on your side
When it comes to saving for retirement, we recommend starting as soon as possible. Allocating money towards your retirement early allows you more flexibility and maximizes the growth of your money through compound interest--interest earned not only on the original savings, but any interest already gained. If you didn’t start saving as early as you’d like or are just getting started, remember the most important thing is to act now.
Know your options
There are a variety of excellent options, but it’s important to select the retirement plan that’s most beneficial for you! A few tax-favored retirement accounts to consider are:
- 401(k): If your employer offers a 401(k) plan, take advantage! You decide how much of your income you’d like to contribute and it’s automatically withdrawn from your paycheck. Most companies offer a helpful benefit called contribution matching. According to CNN, many employers offer $0.50 for every dollar you decide to contribute. That means if you contribute $2,000 over the course of the year, your employer would add an additional $1,000 to your retirement account!
- Individual Retirement Account: If your employer does not offer a 401(k) or you'd like additional savings, an IRA is a great choice. You pick the financial institution, make all the investment decisions and select how and when you receive a tax break. There are two main IRA accounts to choose between, Traditional IRA & Roth IRA. The main difference between a traditional and Roth IRA are the tax benefits. Traditional IRAs allow you to pay taxes as you “cash out” your contributions. This account is considered most beneficial to those in a higher tax bracket or close to retirement. Roth IRAs require the taxes on your contributions to be deducted upfront. This type of IRA account is recommended for those in a lower tax bracket or in earlier stages of one’s career, as you won’t be taxed in the future when you’re expected to have a higher salary.
Seek out professional guidance.
If you are unsure where to start or feel overwhelmed with your options, you may benefit from the assistance of a financial planner. While their services are not free, having your retirement plan in order is worth the investment!