For most people, the quality of their retirement will depend on how much money they saved over the years. While you might have some retirement income from sources like Social Security or maybe a pension, more often than not, it is just not enough. That means you have to put some money aside for retirement deliberately. If you want to get your retirement on track, here is a list of some things you have to know.
To have the retirement you’ve always dreamed of takes planning. In many cases, you might have thirty or more years to sincerely think about what your plans for retirement are and how to get there. The first advice is to dream and to envision your life at the age of seventy.
Time can either be a great asset or your worst enemy, depending on where you are in life right now. The secret key is to start early so that you can save up a larger sum of money. If you wait until the last moment, you’ll realize that you don’t have the proper amount of cash to fund your dreams.
The 401(k) Plan
One of the most attractive benefits that American employers offer is the 401(k) plan. It is a retirement plan which allows you to direct a considerable portion of your paycheck into a so-called investment account.
The general idea is that you save money on taxes by making certain pre-tax contributions while also investing in something that will grow in value over time. Thus, if you play your cards right, you can retire with a nice sum of money in your bank account without having to make any special adjustments.
If you care about having complete control over your retirement funds, then an IRA is what you need. These types of individual retirement accounts offer some of the same benefits of a 401(k), while also providing you with complete control of where to put the money. Of course, not all people are eligible, and there are also lower contribution limits, so check online to see if you or your partner meets the criteria.
One big downside
There’s an important downside to retirement accounts, not only for elderly people but for youngsters too. The early withdrawal penalty is a thing that displeases many. It means that if you withdraw your money before the age of 59 and a half, you could be subject to an 11% penalty, in addition to ordinary income taxes.
There are eleven separate exceptions that can get you out of paying the rather large penalty, but most people say they are not worth the trouble, as most attempts to avoid paying the penalty end in disappointment. One loophole is that you can pay for college penalty free with funds from an IRA, but you can’t do that from a 401(k).