(TheConservativeTimes.com) – When it comes to saving for retirement, the earlier you start, the better. Retirement has changed dramatically in recent years. Compared to previous generations, planning for retirement has become far more complex.
The “baby boomer” generation usually worked for the same company for decades, and back then companies offered pensions. Workers typically retired in their mid to late 50s or early 60s.
Today’s workers change jobs more often and most companies no longer offer pensions to their workers. Life expectancy has increased and people are working longer than they used to, often well into their 70s.
Social security has been a big part of the retirement picture, but it isn’t always sufficient to cover all living expenses.
In today’s world, it’s important to plan ahead and use the tools available to help you plan for retirement, such as 401k and IRA accounts.
How Do You Start Planning For Retirement?
The first thing to do is determine what your goals are. While you can’t predict everything, it’s a good idea to project into the future what kind of income you will need to maintain your lifestyle. What will your assets be? Where will you live? Do you currently work for a company that offers pensions? Have you served in the military or a government position?
What age do you plan to retire? The earlier you retire, the fewer years you will have to save or retire and the more years you will have to survive on what retirement income you have. The following are some ways you can start saving today for your retirement tomorrow.
Standard 401k Plan
Most employers offer some type of retirement savings plan, and a 401k is the standard. You have a specific amount of money taken out of each paycheck and put into your retirement account. One benefit of a 401k is that the money is taken out pre-tax. There are limits as to how much money you can add to your 401k per year, and there are penalties for early withdrawal. While you don’t have to pay taxes on the money in your 401k before retirement, you will have to pay taxes on it once you withdraw the money.
Here are a few more quick facts about 401k accounts:
- Many employers will match contributions made to your 401k account.
- 401k plans can be transferred from one employer to the next.
- You may withdraw a loan from your 401k account.
- In cases of hardship you may be able to withdraw money from your account.
- Your 401k will earn interest but you must pay taxes on that interest when you withdraw.
- A Roth 401k means you pay taxes on the money you contribute to your plan, but don’t have to pay taxes when you withdraw.
An IRA plan is like a 401k and another popular tool for retirement planning. As with a 401k you allocate a certain amount of your income to be deducted from your pay on a weekly or bi-weekly basis. There are limits to the amount you can contribute each year and those amounts can change periodically.
Like a 401k, your IRA will accrue interest and your employer may make contributions to your retirement account. IRA plans have more restrictions than 401k plans but they also offer options 401k plans don’t have.
- There are also Roth IRAs that allow you to pay taxes on your contributions so you don’t have to pay taxes at the time of withdrawal.
- SEP IRAs are ideal for the self-employed.
- Simple IRAs are for employers with fewer than 100 employees.
- Rollover IRAs mean you can transfer your IRA from one employer to another without having to withdraw your money and pay taxes on it.
While most employers today don’t provide pension plans for their employees, some still do. For many people, finding a job within an organization that offers this is a big draw. Not only that, but you can still contribute to other retirement accounts to maximize your income in the future.
Today it is more important than ever to carefully plan for retirement. The future of social security is uncertain, the cost of living is rising, and not everyone will have family to fall back on in their retirement years. Planning today will help ensure a better future in your golden years.
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