We have a lot of goals and things we envision for our future and growing old together as a couple. We want to serve a mission through our church, scuba in the Maldives, take an African safari, and many other big adventures. We have these big dreams but we know we can make anything a reality for our future if we are willing to save and work hard for the goals we have. This same principal applies to our financial planning for our retirement. We set aside money every month to save for our retirement.
Understanding how to start saving for retirement can be confusing. After we worked our way out of debt last year, the next step for us was starting our retirement. It’s something I wish we would have known to do when we were newlyweds. We could have had 8 years of savings already building interest for us. Still, it’s never to late to start. I read this interesting article on Fox Business that talked about the struggle some Baby Boomers are facing as they near their retirement. It reaffirms to me that we need to do the best we can to prepare for our futures. There are two main types of retirement investing you can consider while planning:
401k: With a 401k, you make contributions to a retirement savings account before taxes. This means you don’t pay taxes on the portion that you contribute upfront. You’ll have a bit of a tax break today. You will pay taxes on your retirement funds when you disperse them down the road. If your employer offers a company match program, you’ll want to invest in a 401k up to the full match. This gives you an immediate return on your investment doubling your retirement instantly!
- Here’s an example: On a $1000 paycheck if you invest $100 into a 401k you will then be taxed on an income of $900. If your company offers a 4% match, they would contribute $40 for the example above because you contributed over 4% yourself. This increases your total amount invested for that pay period to $140. Most companies will do a 100% match up to a certain percentage of income contributed but other companies have a different setup so find out what your employer offers.
Roth IRA: In a Roth IRA, your income is taxed first and then you can contribute up to the yearly maximum into this investment type. Because you pay taxes upfront on the money you invest, you will pay no taxes when you receive disbursements during retirement. That means while you won’t get the tax benefit today, your much larger dollar amount 30 or so years down the road will not be subject to taxes!
The really important thing is to not tap into your retirement savings for any reason. Your planning for a secure future to be able to take care of yourself. Don’t let excuses come up that let you justify your future away for something today. You will also face fees and/or taxes for withdrawals from retirement accounts before a retirement age. While there are some qualified expenses such as college expenses and home down payments, choose to save for those and make sacrifices else where than taking away from your retirement.
Keep in mind that I am not a financial expert, this is just what I have learned about retirement plans and options over the past two years. When you are ready to start looking into retirement options, be sure you speak with a professional that can assess your own unique circumstances include age and goals to help you prepare properly for your future. Genworth Financial has a really great resource available to help you figure out some of the aspects to consider when planning for your future. It is loaded with worksheets to help you get a good starting point for figuring out a starting point for your retirement plan and get you started on what you need to do to get there.