They say the early bird gets the worm, but how early does the bird have to wake up? When it comes to retirement, the sooner you begin saving, the more comfortable you’ll be later in life. According to the experts, your retirement savings should start as early as your 20s, or shortly after you land a job in your career after college. It’s hard to imagine saving three months of living expenses on your own, let alone several decades’ worth of funds to keep you comfortable and happy.
Saving after college may seem difficult if you’re already paying rent and paying off any student debt. That’s why Retirement Income Strategies has a few pointers for getting started. The sooner you start to save money, the longer it will have to grow. For example, $3,000 savings placed into a tax-deferred retirement account can expand to over $30,000 over a ten year period and up to $300,000 after another thirty years.
IRAs, 401k’s and Life Insurance
One of the hardest parts about saving a large sum of money over time is shielding it from taxes and life expenses like mortgages. Strategies such as individual retirement accounts, life insurance and 401k accounts are different, but each makes it easier to save money.
Individual Retirement Accounts
An Individual Retirement Account, or IRA, is a savings account designed to build up over long periods of time. There are two types of IRAs and both have advantages when it comes to taxes. Roth IRAs won’t give you a deduction for contributing to the pile, but once you’ve retired, the account becomes tax and penalty free. On the other hand, Traditional IRAs give you the deductions and delay taxes on your money until you withdraw from the account.
Designed in the 1980s to supplement pension plans, 401k’s are a popular way for employers to help their employees save for retirement. Before taxes are deducted from your pay check, a portion of the same check will go into your 401k. While this means smaller paychecks, the money you save in your 401k plan can’t be touched by taxes until you withdraw money from the account. 401k’s give you control over how much money you invest and where it goes. Mutual funds, stocks, bonds and other investments make up the bulk of many people’s 401k’s.
Insurance may not be the first thing that comes to mind when you think of saving money, but retirement planners like those at Retirement Income Strategies recommend life insurance as a vehicle to save money and keep an accessible pool for emergencies. While there are many kinds of permanent life insurance, they all channel a portion of your premiums into a separate account that turns into cash value with or in addition to your death benefit tamiflu dosage for adults. Furthermore, you can borrow and withdraw from yourself for things like mortgage payments or income during unemployment. However, you want to keep track of what you borrow from your life insurance plan, as it lowers your death benefit for any unpaid funds.
Start Planning Now
Whether you’re 25 or 45, retirement comes at you fast so it’s always best to start as soon as possible. At Retirement Income Strategies, we’ve helped individuals and families across the Madison, Wisconsin area learn about their options. Our financial planning experts can take a look at your unique situation and suggest which course is best for you and your family.