First Quarter Financial Plan: How to Start a Retirement Plan
So far in Lincoln Savings Bank’s
First Quarter Financial Plan, we’ve discussed financial issues that deal with your current or short-term finances. However, no matter how young you are, you also want to consider saving for retirement. The 2008 recession wiped out retirement savings for many, forcing them to continue working or get back into the workforce.
Skipping the “how much do I need question” for now, as it depends on individual circumstances, we want to focus on getting a retirement plan started. When looking at the basics of a retirement plan, there are two things to remember:
- Compound interest helps your money grow quicker
- The longer your money is earning compound interest, the more you will have for retirement
That means there is massive importance in starting a retirement plan ASAP. So, where do you begin?
401(k)- if your employer offers this benefit and you’re eligible for it, you should be taking advantage of it. A 401(k) is a great way to start saving for retirement as it’s automatically deducted from your paycheck before taxes. Some employers also match contributions up to a certain percentage.
Individual Retirement Accounts (IRAs)-
IRAs are a good option if your employer doesn’t offer 401(k)s or if you are maxing out your contributions and still have money left to save. There are two kinds of IRAs: traditional and Roth. The main difference between traditional and Roth IRAs is that contributions to a traditional IRA are not taxed, while the withdrawals are; the reverse is true for Roth IRAs. Your tax adviser can help you figure out which is the best choice for you.
Financial Planning- this takes all aspects of your financial life – checking/savings accounts, 401(k)s, IRAs, loans, mortgages, etc. – and looks at how to make them work the best for you. Investments, current or future, are also a large part of financial planning.
Remember: the sooner you start planning and contributing to your retirement, the better shape you’ll be in. Lincoln Savings Bank
will be glad to help if you have questions. We’ll be back this week with another blog post, so be sure to check our Facebook page!
Lincoln Savings Bank, member FDIC