Retirement planning for youngsters!
- By Jen Fortney
- Published 04/21/2010
- Finances
- Unrated
Retirement planning for youngsters!
You may believe that because you are young, you don’t need to think about planning for retirement yet. However, when you are young is the perfect time to begin that plan, and if you do not plan, at least start to save part of your income regularly.
You may think that your life is too hectic right now, and that you are too busy to make long-range plans – that things will slow down later, and then you will make those decisions. But, before you know it, ten years will have gone by and life will not have not calmed down a bit, it will just be busy in different ways than before.
Try to save a minimum of 5% of each paycheck that you get. If your employer offers direct deposit of your salary to a bank or credit union, you can designate a percentage or a dollar amount to be deposited directly into a savings account. It is much easier to save when it can be done automatically for you.
After you have saved enough to get a certificate of deposit (CD) or money market account, typically around $500 to $1,000, you can ask the financial institution to transfer that from your savings account and earn a higher interest rate. It is a good idea not to transfer all of your savings to a CD, because if you should need to withdraw some of it before the CD’s maturity, you would incur a penalty for early withdrawal. It is wise to keep some savings available for unexpected expenses. The interest on a money market account is usually not as high as that of a CD, but you can withdraw from it without a penalty.
Some retirement plans, such as Individual Retirement Accounts (IRAs), provide a deduction on your income tax return. However, if you need to withdraw from your IRA before you reach the age of 59 ½, you will be penalized on your next return, and you will also have to pay income tax on the amount that you withdraw. Consider all possibilities before you decide on the amount to contribute to an IRA. The interest rate on IRAs is usually higher than on regular savings or CDs, so they are a good option for retirement income. You can start withdrawing from an IRA after age 59 ½, and you must begin withdrawing after you reach 70 ½. Your bank or credit union will calculate your estimated life expectancy according to IRA guidelines to determine the minimum amount that you must withdraw each year. If you choose, you can withdraw more than the minimum but not less.
Take advantage of any retirement plans offered by your employer. With some of these plans, your employer will match the amount that you contribute to the fund, which doubles your savings dollar. Many employers offer 401(k) plans, which are similar to IRAs, but they have some differences. Your contributions and the interest earned on a 401(k) are tax-deferred until you withdraw the funds. The amount of your contribution is deducted from your gross income, so you do not pay income tax on that amount until withdrawal. If you leave your job, you can transfer your 401(k) to a new employer’s plan or an IRA at your bank or credit union.
With the state of the economy today, you cannot be sure that Social Security will be available when you reach retirement age. Even if you can only save a dollar or two a week, you will be amazed at how it grows with interest added to it. However you decide to invest for your retirement, don’t put it off - start saving now - and when you want to retire you will be glad you are prepared.
You may think that your life is too hectic right now, and that you are too busy to make long-range plans – that things will slow down later, and then you will make those decisions. But, before you know it, ten years will have gone by and life will not have not calmed down a bit, it will just be busy in different ways than before.
Try to save a minimum of 5% of each paycheck that you get. If your employer offers direct deposit of your salary to a bank or credit union, you can designate a percentage or a dollar amount to be deposited directly into a savings account. It is much easier to save when it can be done automatically for you.
After you have saved enough to get a certificate of deposit (CD) or money market account, typically around $500 to $1,000, you can ask the financial institution to transfer that from your savings account and earn a higher interest rate. It is a good idea not to transfer all of your savings to a CD, because if you should need to withdraw some of it before the CD’s maturity, you would incur a penalty for early withdrawal. It is wise to keep some savings available for unexpected expenses. The interest on a money market account is usually not as high as that of a CD, but you can withdraw from it without a penalty.
Some retirement plans, such as Individual Retirement Accounts (IRAs), provide a deduction on your income tax return. However, if you need to withdraw from your IRA before you reach the age of 59 ½, you will be penalized on your next return, and you will also have to pay income tax on the amount that you withdraw. Consider all possibilities before you decide on the amount to contribute to an IRA. The interest rate on IRAs is usually higher than on regular savings or CDs, so they are a good option for retirement income. You can start withdrawing from an IRA after age 59 ½, and you must begin withdrawing after you reach 70 ½. Your bank or credit union will calculate your estimated life expectancy according to IRA guidelines to determine the minimum amount that you must withdraw each year. If you choose, you can withdraw more than the minimum but not less.
Take advantage of any retirement plans offered by your employer. With some of these plans, your employer will match the amount that you contribute to the fund, which doubles your savings dollar. Many employers offer 401(k) plans, which are similar to IRAs, but they have some differences. Your contributions and the interest earned on a 401(k) are tax-deferred until you withdraw the funds. The amount of your contribution is deducted from your gross income, so you do not pay income tax on that amount until withdrawal. If you leave your job, you can transfer your 401(k) to a new employer’s plan or an IRA at your bank or credit union.
With the state of the economy today, you cannot be sure that Social Security will be available when you reach retirement age. Even if you can only save a dollar or two a week, you will be amazed at how it grows with interest added to it. However you decide to invest for your retirement, don’t put it off - start saving now - and when you want to retire you will be glad you are prepared.
Jen Fortney
Jen Fortney is a financial blogger for Ratelines. Jen has been typing articles as fast as she's able for Ratelines for 6 years. Check out Ratelines for great advice and information on certificates of deposits and savings account rates.
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