It’s never too soon to start thinking about those faraway days when you’ll sit on your porch and wave your cane at the neighborhood kids to get them to slow down on their new-fangled transportation devices. In fact, thinking about your retirement when you’re young is practically a necessity these days, considering most of us who are just starting out won’t have social security to look forward to when we reach our twilight years. It can be hard to set aside money for your future when you’re working your way up the corporate ladder, trying to buy a house and start a family, and basically attending to the cost of daily living. But it is imperative that you begin putting away some money now for the nebulous future that will sneak up more quickly than you expect.
The first and easiest way to start saving for retirement is to look into your company’s policy on a 401K. Many businesses offer a matching program. You put a certain percentage of your paycheck (pre-tax) into an account that the company hires a firm to manage (there is usually a limit to how much you can put in). Then the company will match up to a certain percentage (generally in the 4-6% range). So you are basically lowering what you pay in taxes (although you will have to pay income tax on whatever you draw from your 401K down the road) and you’re getting additional funds (for free!) from the business you work for. What could be better?
Another smart way to save for your eventual retirement is with a Roth IRA. Similar to the 401K, this account can’t be touched (without penalty) until you reach the age of retirement. But again, the money is non-taxable (until you withdraw it). Since you’ve already paid taxes on this money, you will have to claim it as a deduction to get the rebate. But the major benefit of the Roth IRA is that you get a fairly safe and stable account that tends to earn a higher percentage than some other types of savings plans. There are also limits on how much you can funnel into these accounts each year, so you may want to check with a financial planner.
You can also look into stocks and bonds as a way to save for the future. By forming a portfolio at a young age, you have the opportunity to make your money work for you for over time, which could result in a huge profit before you’re ready to retire. Of course, you will be taxed on any money you earn each year (but you won’t pay more tax down the road). The trick with any portfolio is diversity (a mix of high- and low-risk stocks, mutual funds, etc.), although likely a stock broker can advise you on how to proceed.
Finally, do not discount the value of an actual savings account. Although they stand to earn you a pittance when compared to other types of savings, they are the safest option by far. The only way you can lose money from savings is if you take it out yourself (which is a definite possibility if you’re not committed to maintaining it). But the whole point of a savings account is to have some money for a rainy day (in the event of job loss, medical bills, or other unforeseen expenses). In any case, saving now means you won’t have to worry about working your whole life. And the peace of mind you’ll get from that knowledge is worth its weight in gold.
Sarah Danielson writes for Roth IRA where you can find out how to open your Roth IRAIRA conversion to Roth as well as finding other tools and information to help you on the road to retirement. and learn about
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