Many of you reading this section will probably say, “Retirement
investing? Why should I bother with that, when it’s so
far away?”
Well, according to a group of high
school kids I recently spoke to, they all wanted to retire
by age 40. Mind you,
I’m still not sure if they really understood that forty
isn’t that old, or they just want to retire really,
really early. At any rate, if they really do want to retire
by age 40, they’d better be fully vested for retirement
by age 35, and have most, or all, of their debts paid off,
which means that they should have started planning by age
5. With that said, now, do you understand, why it’s
so important to start funding your retirement, as early as
possible?
What, in fact, happens, is that far
too many people—don’t
invest for retirement when they are self-employed, or they
borrow retirement earnings (before they retire) from themselves
and use it for something else, or they have jobs with no
retirement, or they end up with only meager, insufficient
social security payments to support themselves.
With that said, what other information do I need to give
you, to motivate you to start saving for retirement early,
or just prompt you to start, period? How about this, since
you will receive both tax-deferrals and tax-deductions on
some retirement plans, reason #1, you can still end up with
more money, than if it were in a regular savings account,
even if you have to take it out early and pay a penalty,
reason #2.
There are many ways to invest for
your retirement—use
an IRA (i.e., an individual retirement account), a Roth IRA,
a self-employment retirement account, a supplemental retirement
account, an employer-sponsored 401k, 403b, or another retirement
account. Retirement accounts can be tax-deductible, tax-deferred,
or both tax-deductible and tax-deferred. The latter is where
the really big savings come in, but any one of them is good
to have. Just get at least one of them!
Self-Employed or Small Business Retirement Accounts:
IRA or Roth IRA (for individuals)
SEP-IRA (Simplified Employee Pension
Plan—i.e. easy
to set up)
Keogh (this is more complicated to set up)
Simple IRA
Employer-Sponsored Retirement Accounts:
401K (for profit-oriented companies)
403b (for non-profit organizations)
Employer-Sponsored Plans:
Can contain both tax-deductible and tax-deferred earnings.
Some employers will also match, or partially match (see “matching,” the
Retirement Q&A section), whatever funds you contribute
to your employer-sponsored retirement account. This can leave
you with a substantial sum of money, at retirement.
Individual Retirement Options:
IRA (have both deductible and non-deductible types)
Roth IRA (non-deductible, but earnings grow tax-free)
You must first meet a set of minimum requirements for all
retirement plans. Also, retirement plan laws are constantly
changing. So verify changes at the IRS website.
Related Links:
Retirement
Q & A
Retirement Calculators
This is an excert form the award winning
book , Let's Get Financial Savvy!
Lois Center-Shabazz is the founder
of MsFinancialSavvy.com and author of the 3-time award-winning
personal finance book, Let's Get Financial Savvy! ISBN #0971979502.
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