Though it seems like it’s a long way off, retirement is something you have to start saving for early in life. Think back to when we discussed compound interest a few weeks ago. The benefits of compound interest are particularly evident when talking about retirement. Take a look at this infographic from Bankrate, which illustrates the importance of saving for retirement when you’re young. If you start investing in your 20s, you’ll have a lot more money at retirement than if you start investing later in life.
There are a number of different retirement plans out there. Some are offered through employers, while others are not. For the employer-sponsored plans, what you have access to may vary based on where you work. In the private sector, employers may offer a 401(k). In the non-profit and public education sectors, the 403(b) is common. Make sure you understand what options are available to you and how they work. If you have questions, talk to your employer’s Human Resource Department. There are a number of benefits to participating in employer-sponsored retirement programs, the primary one being that employers often contribute to the plan as well, which means free money for you. Another positive is that the money you contribute is deducted from your paycheck before taxes. You don’t have to pay taxes on the money until it is withdrawn.
An IRA, or Individual Retirement Account, is another type of retirement plan. The most common options are the Traditional IRA and the Roth IRA, which are not available through employers. Roth IRA’s are usually encouraged for younger people, because you will probably be in a higher tax bracket when you retire than you are in right now. However, make sure you talk to a financial specialist to determine which account best fits your needs. The IRS has a helpful comparison chart you can look at, as well.
If you’re wondering how much you should save for retirement each month, the answer is as much as you can. Some plans have restrictions on how much you can set aside each year. The closer you get to that limit the better. The more money set aside now, the more that money will grow.
Below are a few resources to give you additional information retirement. Even if it seems like a long way off, it doesn’t hurt to start planning now!
Via Andersen Library:
- Financial Asset Management and Wealth in Retirement, by Terrance G. Waverly. Available online.
- Pensions: Backgrounds, Trends, and Issues, by Henry J. Mullen. Available online.
- Individual Retirement Accounts: A Primer, by Felix R. Burnes. Available online.
- Information on Social Security Benefits from the Social Security Administration
- What You Should Know About Your Retirement Plan from the Department of Labor
- Individual Retirement Account information from UW Credit Union