The best day to start saving for retirement is today, even if you can save only a little bit. The reason for this is the longer your money is invested, the more you will earn thanks to compound interest.
Compound interest occurs when the interest earned on your investment is re-invested and earns interest. By earning interest on interest, your retirement savings has the potential to snowball over time.
There are accounts available to you help you save for retirement. Find the one that works for you and take advantage of the benefits they offer.
Individual Retirement Accounts (IRAs)
IRAs are retirement accounts that offer tax advantages over other retirement accounts. The most common types of IRAs are the traditional and Roth. Both plans can invest in stocks, bond, mutual funds and other assets and allow penalty-free withdrawals after age 59 ½. The difference between the two is how they’re taxed.
- Traditional IRA: Your contributions are tax-deductible but you must pay taxes when you withdraw.
- Roth IRA: Not tax-deductible but your withdrawals in retirement are not taxed.
Company Pension Plan or 401k
A pension is a retirement plan that you put money into from current wages. Your employer may also match a portion of the your annual contributions, up to a specific percentage or dollar amount. The money you put is then invested on your behalf. The earnings that the investments generate can than be withdrawn upon retirement.
Deferred Compensation Plans
A deferred compensation plan is an arrangement in which a portion of your income is paid out at a later date after which the income was earned.The primary benefit is the deferral of tax to the date(s) at which the employee receives the income. Talk to your employer about deferred compensation plans.
Washington Retirement Marketplace
Sadly, many small businesses and workers don't have access to retirement plans because of their cost and complexity. The Washington Retirement Marketplace makes it easy to find a plan so you can start saving for the retirement you deserve. Learn about saving for retirement and compare plans at the Marketplace.
Consider Working With A Certified Financial Planner
Planning for retirement can be daunting. Consider working with a certified financial planner to develop a retirement plan that works for you. Be sure to ask the certified financial planner about costs and fees up front.
Helpful Websites and Resources
- Social Security Administration
Information about planning for retirement.
- AARP Retirement Planning
Great information and resources from AARP.
- Ballpark Retirement Estimate Calculator
Calculator to estimate how much you will need to retire.
- NY Times: How to save for retirement
Good series from NY Times on saving for retirement.