Retirement
Retirement Planning for the Ages
MoneyTrack Retirement
Reality Check Video
Retirement planning isn’t a one-size-fits-all approach. The retirement planning strategy that’s right for you might be different for your best friend or your worst enemy, even if you’re about the same age and have roughly the same income. Although strategies may differ, certain retirement planning tips may be helpful during various stages of your life.
20s and 30s
Even if your career is just getting started, it’s not too early to begin planning for retirement. The smallest steps you take now can make a big difference someday. Starting to save at a younger age reduces the amount you’ll need to put away later.
If you’re eligible for a qualified retirement savings plan through work, begin making contributions immediately, even if you don’t think you’ll stay at that job for too long. Employers will usually match all or part of your contribution up to a specified amount. Check out how long it takes for your employer’s contributions to vest. If you do move on to another position, roll over that retirement savings plan to an IRA or your new employer’s plan.
The caps on contributions to 401(k)s and other retirement saving plans have increased dramatically in recent years. Nevertheless, you should make contributions to a retirement savings plan, even if you’re only able to put away one or two percent of your salary.
If you’re self-employed or run a small business on the side, it’s every bit as important that you start saving for retirement in your 20s and 30s. Ask your accountant or a tax lawyer about whether it makes sense to set up a Simplified Employee Pension (SEP-IRA), SIMPLE-IRA, or a Keogh plan. There’s even a solo 401(k) that will shelter your savings for retirement.
If you’re not disciplined when it comes to putting away money, forced saving plans are just what the doctor ordered. The money is invested before you can get your hands on it. Along with investing automatically in retirement savings plans, you can sign up to have a mutual fund take a specified amount each month from your checking or savings account.
If you’re eligible for a qualified retirement plan through work and that plan offers a match, start making contributions right now, even if you don't think it is a long-term career move. The match is like found money.
Even though investing in the stock market can be daunting, money you’re putting away for retirement should still be in equity investments. When you have a long time horizon, the stock market is still likely to produce the highest rate of return over the long haul.
By investing money at regular intervals in stocks or mutual funds, you’ll take advantage of the dollar-cost averaging strategy. Your investment buys more shares when prices are down and fewer shares when prices are high. If you stick with it, the average price you pay per share is likely to be favorable.
ARE YOU READY FOR RETIREMENT?
A new study says more than four in 10 baby boomers and Generation Xers are not, and they have a choice: Save now or suffer later.
In addition to your employment-related retirement savings plans, think about opening a Roth IRA. Although the contribution isn’t deductible, your investment will hopefully grow in value over the years and any profits you withdraw someday will be tax-free. Also, you’re permitted to withdraw your own contributions at any time and for any reason without a penalty, so your money isn’t locked up entirely if you need cash.
Assuming you need more than just your Roth IRA principal back, you can also tap the earnings in certain situations before age 59 1/2 without paying the 10 percent penalty. For example, you may withdraw a maximum of $10,000 in earnings without paying a penalty if you’re a first-time homebuyer. Unfortunately, however, you must pay income taxes on the withdrawal and that defeats the purpose of having a Roth IRA.
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