Starting down the path of saving for retirement can be daunting. Many people don’t understand the intricacies of retirement accounts, and that lack of knowledge can be enough to cause them to put off saving for a later date. You don’t need to wait to start putting money away for your future.
Read on for some starter tips you need to know to begin saving for your retirement today.
The best time to start saving for retirement was the day you received your first paycheck. The second-best time is now. Most retirement accounts work through what is sometimes referred to as “the miracle of compounding interest.” Compounding interest is the idea that the money you deposit in your retirement account earns interest over time, and the interest that money earns also earns interest. With compounding interest, time is your best friend. The earlier you start putting money toward your retirement, the more your wealth will grow over time.
The goal of saving for retirement is to get to a point where you can successfully replace the income from your day job with the funds from a retirement account—allowing you to stop working for the remainder of your life. Unfortunately, some people never set aside money for retirement—requiring them to keep working until physical limitations prevent them from being able to earn a paycheck. By setting aside money today for your future retirement, you guarantee yourself a certain level of comfort in your later years.
You may have heard the term “IRA” before, but what exactly is that? IRA stands for “individual retirement account,” and it is one of the most common ways that people save for their retirements. There are two types of IRAs—traditional and Roth.
With a traditional IRA, the money you contribute to your retirement account can be either fully or partially deductible, and your retirement savings aren’t taxed until you withdraw them, much like your regular income. Traditional IRAs can be beneficial because they allow you to save up more money more quickly. However, it’s important to note that you will also be taxed on the gains your money makes from the time it is deposited until the time it is withdrawn.
A Roth IRA reverses the tax schedule of a traditional IRA. With a Roth IRA, your retirement account contributions are taxed when they are deposited and not when they are withdrawn. The primary drawback of a Roth IRA is that your money builds more slowly than it would with a traditional IRA. The major benefit of this type of retirement account is that, as long as you are only taking out qualified distributions, your money is not taxed as income when it is withdrawn—including the gains that money made after being deposited.
Payroll deductions are the easiest way to begin your retirement savings. Perhaps the simplest retirement arrangement an employer can offer, payroll deductions automatically take a predetermined amount of money out of each of your paychecks and deposit that amount in your individual retirement account, regardless of whether it is traditional or Roth.
No matter what your retirement goals are, it’s important to start working toward them now, so you don’t need to worry about them later. If you’re still wondering how to get started, visit the retirement page on our website or find a branch near you, and stop in. We would love to help you start planning for your financial future.