When you’re young and just breaking into the workforce, the last thing on your mind is saving for retirement. Ignorance can be bliss in that regard. But in reality, you should focus on starting a retirement plan at your job as soon as possible. The more money you have saved now, the better off you’ll be for it at a later age.
According to the Federal Reserve, nearly one-third of working-age Americans have no retirement savings or pension. That also includes 25 percent of non-retired people over the age of 45.
For a lot of Americans, retirement planning starts and ends with their employer’s retirement options, often called a 401(K). But not every employer offers a retirement plan and many people are forced to look elsewhere for retirement options.
Usually, an IRA (Individual Retirement Account) is the best place to start if this is the case.
It can be very confusing to figure out what kind of plan to choose when you haven’t looked that deep into retirement planning. The first thing you have to figure out is the difference between a Roth IRA and a traditional IRA.
Choosing an IRA
A Roth IRA is a great choice if you expect your tax rate to be the same or higher in retirement. Withdrawals in retirement are not taxed. A traditional IRA might make a good choice if you expect that your tax rate will be lower in retirement because contributions made now are deductible.
Both IRAs have income thresholds that govern who can make qualified contributions to the accounts. Contributions made to the accounts are made after taxes are paid, so there is no deduction. The contribution always grows tax-free.
How to invest your money isn’t an easy choice. It requires a lot of homework on which direction is best to take. The safest bet is picking investments in the stock market. Taking risks when you’re younger is safer than when you’re older.
Investors with 10 or more years left until they retire can also afford to take risks and go for high returns offered by the stock market rather than playing it safe with certificates of deposit and bonds. The good thing is you can’t lose money in safe investments, but the bad part is you can’t make that much, either.
You can open an IRA at most financial institutions, including TopLine Federal Credit Union. TopLine can help you prepare for your financial future with our specialized investment services.
Reach us at 763-391-9494 or learn more at www.toplinecu.com!