Understanding Retirement Savings

September 28, 2023

Planning for retirement is an incredibly important step in building wealth. Although its best to start as early as possible, you’re never too old to start saving. Taking the steps to initiate your retirement savings plan can be intimidating, but taking the time to educate yourself on different retirement plans empowers you to make informed decisions about your financial well-being.

Types of Retirement Accounts

There are various retirement accounts designed to suit different needs and goals. Some are offered by employers while some are available to everyone. If available, you should use a mix of these accounts. Here’s a few employer sponsored accounts and non-employer sponsored accounts you should look in to.

Employer Sponsored Accounts

  • 401(K) Plans are the most popular employer sponsored account—and for good reason. Employees contribute a defined amount of their paycheck each pay period. Employers can also offer a match for employees’ contributions into their 401(K) accounts. The catch to this account is that you can’t access your money without penalties until you’re 59 and a half years old.
  • 457 Plans are like 401(K), but they are only offered to employees at nonprofit organizations.
  • 403(b) Plans are also very similar to 401(K) plans, but these plans are specifically for employees of public school and tax-exempt organizations.

Non-Employer Sponsored Accounts

  • Individual Retirement Accounts (IRA) are the most popular non-employer sponsored account. You can commit up to the limit amount set by the IRA. Similarly to a 401(K), you can’t access the money you invest into this account until you’re 59 and a half.
  • Guaranteed Income Annuities are a retirement saving tool that converts already saved retirement money into a passive form of income to build upon your retirement savings. It essentially uses your retirement money to purchase a guaranteed stream of income that isn’t venerable to the everchanging market.
  • Cash-Value Life Insurance Plans aren’t specifically designed for retirement, they can easily be adapted to support retirement plans. This type of life insurance policy includes a cash-value that accurse tax-deferred interest. Contrary to popular belief, you can access your life insurance money while you’re still alive for big events—such as retirement.

Most accounts are offered as Roth or traditional. The main distinction between Roth and traditional accounts is when you pay tax. For Roth accounts you pay the taxes now so you can take the money out tax free. Most people enter higher tax brackets as they get older and continue their careers, so you’ll save a lot of money on your investments if you pay the taxes now versus later.

Creating a Retirement Savings Plan

Crafting a solid retirement savings plan is like developing a strategy to tackle a fire: it requires careful consideration and preparation. This means taking the steps to create a personalized plan, including setting retirement goals, estimating your future expenses, and determining how much you need to save each month to achieve your desired retirement lifestyle.

The Connection between Investments and Retirement

Adding investing on top of saving for your retirement may sound overwhelming, but it can be a great way to grow your retirement savings over time. Finding low risk long term investments that require longer time commitments to yield the high rewards are a great way to build upon your retirement savings. The safest way to initiate these kinds of investments is to diversify your investments.

Adapting Your Plan Over Time

Retirement plans are the most long-term type of savings you can do. You just want to assign a specific amount to your retirement account(s) every pay period and forget about it. The only time you should be adjusting or adapting your plan over time is if you’re greeted with a better deal or match.

Seek Out Guidance

Planning for retirement can be scary and confusing—there’s no reason you shouldn’t reach out to professional to help guide you through this process. Contact us today to start planning your retirement.

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