Saving for Retirement
Saving for Retirement
Most people look forward to spending their golden years of retirement relaxing and doing things they didn’t have the time for during their working years. However, a financially secure retirement that allows you to enjoy your new found free time doesn’t just happen. It takes much thought and careful planning on your part. Consider the lifestyle you want to have after retirement. Do you plan on traveling? Will you own your own home? The amount of money you will need to save will be affected greatly by your answers to these types of questions.
The Sooner the Better
Retirement planning isn’t a topic often contemplated by those in their early 20’s who have just begun their careers, but it should be. The most important element in maximizing any savings plan is to start making contributions sooner rather than later. That’s because the earlier you start saving, the more time your money has to compound.
Investor A opens an Individual Retirement Account (IRA) at age 21 and contributes $4,000 a year to an IRA for five consecutive years until age 25. After contributing a total of $20,000 to the account, Investor A makes no additional contributions, but sees an 8% yearly return on the investment. By the time Investor A reaches age 65, the IRA will have earned $550,580.
Investor B waits until age 41 to open an IRA, then contributes $4,000 a year for 20 consecutive years, until age 60. Assuming the same 8% growth rate, after contributing a total of $80,000, Investor B sees earnings of $290,473 at age 65.
Investor A earned approximately twice as much on the investment with a contribution only a quarter as large as Investor B’s by starting 20 years earlier.
Take Advantage of Tax-Deferred Investments
Fortunately, there are a number of tax deferred investments that can help you save for retirement.
401(k) plans and other plans offered by employers allow you to set aside part of every paycheck. Since the contributions are deducted before taxes are assessed, contributing to a 401(k) lowers your taxable income and earns tax-deferred interest until withdrawal. In some cases, your employer will match a portion of your contributions.
Individual Retirement Accounts (IRAs) may still be tax deductible, depending on your income and whether you or your spouse are covered by another retirement plan. But in any case, an IRA’s earnings are tax deferred.
KEOGH plans allow self-employed people to contribute a portion of their net earned income and they allow the contribution to be tax deductible.
Protect Your Investment
At one time or another, you’ve probably been told not to put all your eggs in one basket. This is especially true when it comes to your retirement savings. There are many different ways to invest your retirement funds, so keep this in mind as you determine which options are right for you.
Dollar Bank is a proud partner of DCR and is committed to supporting the organization in its efforts to build a well-connected community of residents in downtown Cleveland. Stop by either of our convenient downtown Cleveland Dollar Bank offices (Galleria and Public Square) to speak with our banking representatives so they may answer any further questions for you!
The information presented is general in nature and is for information purposes only. It is not intended to provide specific legal, tax or other advice to individuals.