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Retirement Advice to Prepare for Your Future
Whether you’re 26 or 65, it’s never too late to start saving for retirement. In fact, one of the biggest financial mistakes most Americans make is not saving enough.
Did you know over a third of Americans have less than $1,000 saved for retirement? With Social Security payments on the decline, it’s important that you take financial matters into your own hands.
While it’s never too late to start saving, when it comes to retirement more and more people are putting it off. A recent Gallup poll found that the average retirement age today is 62, which is higher than it’s ever been, and unfortunately the number is expected to increase.
A good way to retire is to set aside a predetermined amount of money every month. But if you’re working to play catch-up, here are a few ways you can work toward boosting your savings.
IRAs, 401(k)s and You
Individual Retirement Accounts (IRAs) are private retirement accounts that you set up and contribute to, while 401(k)s are offered by some employers who will actually help you contribute to the account. Often, choosing the best type of account depends on your financial standing and whether your employer offers their own types of retirement plans.
In an effort to help protect your money and help you invest in a financially sound future, here’s a look at a few common plans and what to keep in mind.
Individual Retirement Accounts, or IRAs, are great ways to save because they offer strategic ways to handle your tax liability. There are many different types of IRAs, but the three most popular are:
- Traditional: This is the most common type of IRA. The money you put into Traditional IRA plans essentially becomes a “tax-deferred” investment, meaning you won’t have to pay taxes on it until retirement when you actually withdraw the funds.
- Roth: A Roth IRA plan, on the other hand, requires that you invest after-tax funds. With a Roth IRA, you pay taxes upfront instead of at retirement. This means your investment can benefit from tax-free growth, without any tax burden in the future. Note that with Roth IRAs, you can incur a penalty should you withdraw the investment before you reach a certain age.
- SEP: This type of IRA is for both the self-employed and smaller business owners. Short for Simplified Employee Pension, SEP IRAs are run by an employer and are typically for companies with 25 or fewer employees. SEP IRAs allow you to contribute up to 25 percent of your paycheck and are tax deductible.
But how do you choose? The decision largely depends on your tax bracket and how it may change over time. Since traditional IRAs mean putting taxes off until retirement, this approach is best for people planning to be in a lower tax bracket in the future. On the other hand, if you expect to be in a higher tax bracket when you retire, you might rather invest in a Roth IRA since this will allow you to go ahead and pay taxes now while you are in the lower bracket.
401(k) accounts are among the most popular accounts, and for good reason: many employers will actually match a percentage of your contributions. Most 401(k) plans are set up by employers, and when you sign up you can choose to automatically allocate a percentage of your check to go toward your 401(k) account each month. It’s a simple way to save, and it’s a simple way to earn a little more. If you don’t currently have a 401(k) account, check with your employer to see what options are available.
In addition to planning for retirement, it’s also important to budget, save, and plan for other unexpected events. Take a look at our Credit Card Debt page for more information on how to manage your debt and plan for a healthy financial future.
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