Take charge of your financial future
You may not be sure how much you really need to save for retirement. But you don’t need to have all the details worked out in order to start saving. Start with a rough estimate and begin saving something.
The important thing is to get started as soon as possible. Even setting aside a small amount each month will pay off later. Something is always better than noting.
Time is your friend
It’s never too late for anyone to start saving. but the sooner you begin, the more time your investment will have to work for you. If you are just starting in your career you have the greatest advantage of all: time is on your side. This example shows what a difference a few years can make:
| Lisa | David | |
| Began investing | Age 25 |
Age 35 |
| Annual investment |
$1,000 | $1,000 |
| Years making investment | 10 | 30 |
| Total amount invested | $10,000 | $30,000 |
| Assumed annual return |
8% | 8% |
| Account value at age 65 | $170,030 | $122,346 |
Lisa invests one-third the amount David did but, she ends up with $52,000 more than David. How does she do that? Simply by starting 10 years sooner. By having time on her side, Lisa takes advantage of the power of compounding.
Ready, set, go!
So, we know you need to start saving but, were is the best place for your money? Here are three common ways people invest for retirement:
401(k): This is a type of plan offered by many employers that allows employees to make pretax contributions. You don’t pay taxes on the money you put into the plan, or on the earnings. Taxes are deferred until retirement, when your withdrawals will be taxed. Many employers also offer matching contributions up to a certain amount.
Traditional IRA: An IRA is an Individual Retirement Account. A traditional IRA is similar to a 401(k) plan because contributions are tax-deferred. Your contributions grow tax-free, and you pay taxes on the withdrawals you make during retirement.
Roth IRA: This is a special kind of IRA. You make contributions after paying taxes, but then your earnings grow tax-free and you don’t pay taxes on retirement withdrawals.
401(k) plans offer the greatest advantages and are usually the best starting point for young investors. Work to participate up to the match, especially if your employer offers matching contributions. Matching contributions are money you will miss if you do not participate. If you are starting a new job and have a waiting period before you are eligible to participate in your company’s 401(k) plan, start by putting money into an IRA instead. Both types of IRAs can be a great way to add to your retirement savings if you’ve maxed out your 401(k) plan contributions. No matter where you put your money, take charge of your financial future today. There’s no good reason to wait, and many great reasons to get started. You will be glad you did.
Stay tuned for more future savings tips.
