Growing older is on everyone’s mind at some point or another. The future is uncertain, and it’s okay and natural to suffer from some anxiety about it. “Where will I be in ten years” is a question which has no real answer, and that can be beyond frightening. But there’s no need to fear the future; you can take steps in the “today” to make sure your “tomorrow” is as satisfying as possible.
Peaceful retirement is a lot of people’s dream but as with any dream, you will need to work for it. Taking steps to reduce frivolous spending, setting aside money for the future, and managing your income to optimize your savings are all ways you can prepare. Set goals for yourself so that you have something tangible to work towards. You will be more motivated to continue saving if you know it will pay off.
How you prepare and how long you prepare for are all up to you. If you want to retire early, you should try and set goals that align with that. Making more money now and saving more money for later could be your primary goals. For those who want to continue working into your later years, longer-term investments are more likely to pay off. Think hard about what you want to do in the future and make those dreams a reality.
Funding For Your Goals
When it comes to retirement funding, there are many options you can choose. The IRS has a whole page of examples at https://www.irs.gov/retirement-plans/plan-sponsor/types-of-retirement-plans, so allow me to summarize a few of those for you here.
- 401(k)
I’m sure you’ve heard of 401(k)s? They’re one of the most common examples of retirement plans, and they can be some of the easiest to get into. Put in the simplest terms possible, 401(k)s are plans offered by many United States employers which pay a portion of the employee’s paycheck into an investment account. This money is kept in the account to hold, until such time as the employee wishes to withdraw it.
The contributions to an individual’s 401(k) cannot exceed a certain amount per year. This amount changes based on current inflation and the contributor’s age, so keep up-to-date on that information if you are considering using a 401(k). Individuals must also withdraw a certain amount from their 401(k) after a certain age. As of 2022, that age is 72 years old.
Your 401(k) might be matched by your employer. This means that anything you contribute to it could be doubled if your employer offers it. It also increases your annual limit on contributions significantly, so take advantage of this if you have the option to.
- Individual Retirement Account
The other most common type of retirement fund is the Individual Retirement Account, or IRA. Much like the 401(k), the IRA is a savings account meant to hold money for retirement with certain tax deductions. The IRA is different in that it is set up by the one who plans on using it, i.e., you.
Another difference is that IRAs are more long-term than 401(k)s. Their annual limit is $6000 currently, unlike the 401(k)’s current $20500. You can have multiple IRA accounts, but their collective limit is $6000.
- Roth
You’ve probably seen this word in front of “401(k)” or “IRA”. It is an indicator that the tax policy on that plan is different from usual. Succinctly, Roth 401(k)s and Roth IRAs are paid into with after-tax income, while ordinary 401(k)s and IRAs are paid into with tax-deducted income. Money in ordinary 401(k)s and IRAs is taxed when you withdraw from them, while Roth 401(k)s and Roth IRAs are not. This distinction is important for making your choice, depending on your current and future tax brackets.
These are simply a few examples of retirement plans. This list doesn’t even include the various forms of IRAs, or the many, many unrelated plans. Exploring international avenues, such as the Icelandic personal pension savings, can provide insights into how different countries structure their retirement funds and might offer competitive advantages over domestic options. Profit-sharing plans, defined benefit plans, money purchase plans, all of these are listed by the IRS, and all of them can help you save money in the future. Some banks, like the Navy Federal Credit Union even provide services to help get your started.
Making Your Choices
Confused? You’re not the first,
and you definitely won’t be the last. Retirement planning is a daunting prospect, made all the more difficult by the system’s lack of direction. Hopefully, this information will be able to help you make informed decisions.
Now, it might have looked like you must choose between the different types of retirement plans. That is not the case. There are many kinds not described here, and you can opt-into all of them. Many people have both 401(k)s and IRAs, increasing the amount of money they can save for the future. And, as hinted to earlier, just within the bounds of IRAs there are a lot of kinds, and you can use all of them at once.
Of course, retirement plans are only one way to prepare. Simply saving money on your own is effective and increasing your current income so you can save more for later is never a bad thing. Things like investing, stock market trading, and even taking on paying hobbies can earn you your desired nest-egg, so keep an open mind and find what works for you.
Asking financial advisors for help might seem costly, but it’s a worthy investment toward future prospects. Knowledge and experience are your friends here, and those who work with money for a living have that knowledge and experience. It’s better to pay a little now to avoid paying a lot more later.
Just be smart about your decisions and take your time. Retirement may seem like a pressing issue now, but it’s still a while off.
Conclusion
Many people think saving for retirement has to be difficult and soul-rending, but it doesn’t. Simply making smart, measured financial decisions, and setting aside comfortable amounts of your income can keep you afloat through your morrow years.
None of this is to say you should sacrifice today for the sake of tomorrow. Do not fruitlessly cut necessary costs, or even unnecessary ones, for the sake of a retirement fund. After all, the future is not certain, but today is. Make the most of the present while making reasonable preparations for the future. That is the smartest thing you can do.
With that said, I hope this article has helped you or will help you make the choice you think works best for you. There is no single right or wrong answer, so keep yourself in mind and you should have no worries, now or tomorrow.
