Everyone needs to plan for retirement, and the earlier you start, the better.
According to a recent survey from GoBankingRates, 33 percent of Americans have $0 saved for retirement, while 23 percent have less than $10,000 set aside for retirement. The survey also found the amount an individual has saved strongly correlates to their current age.
Nearly half of millennials have yet to start planning for retirement, while 54.7 percent of baby boomers and seniors have anywhere from $10,000 to more than $300,000 saved.
The biggest issue many face when planning for the future is they often don't know where to start. The good news is even if you've fallen behind by a few years, you can still catch up. You'll first have to understand the financial tools currently available to help you invest in your future so you can comfortably enjoy retirement, even if it's still decades away.
How your employer helps
Some employers have retirement plans set up through a 401(k). Essentially, you invest a certain amount of your paycheck, pre-tax, into your account. You can then choose to manually manage your investments or pick a strategy that best suits your needs and your choices will affect your asset distribution.
Better yet, some employers have a matching program in place. Talk with your human resources representative to see if this is the case because in some instances, your employer may match a percentage of your contributions, but up to a certain amount. Matching programs are essentially free money.
401(k)s are a popular tool for retirement because they help you save for retirement while also lowering your income tax. However, what if your employer doesn't offer a 401(k), or the plan in place doesn't suit your needs?
Individual Retirement Accounts
IRAs are available for anyone to create and manage, whether your employer offers a 401(k) or not. There are no restrictions when you open an IRA, meaning you can invest your money as you see fit. With a 401(k), plans are typically limited, or may charge fees if you choose to have a brokerage manage your investments, U.S. News & World Report stated.
There are two types of IRAs: standard and Roth. The biggest difference between the two has to do with taxes. Traditional IRAs require you to pay taxes when you decide to withdraw the money in retirement, typically after you're 59 ½ years old. However, you can have both a traditional and Roth if you see fit.
But with a Roth, you pay taxes upfront and not when you withdraw from the account. There are also income limits with this type of IRA. It's also worth noting that you can only contribute $5,500 annually to your IRA accounts, combined, according to the IRS.
Retirement planning is a meticulous process. The first step is understanding your options for actually saving and investing money. A standard savings account won't cut it because over the years, your money needs to exponentially grow in order for you to build a safe nest.
For more information about smart ways to manage your finances, contact Landmark Bank.
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