Furloughs. Hiring freezes. Layoffs. Since March 2020, the coronavirus pandemic has had a major impact on the economy. Glassdoor reports that between March 9 and April 6, 2020 U.S. job…
It may seem early, but even if you’ve just landed your first job, you should already be planning for retirement.
While most people don’t retire until their 60s, or even early 70s, thinking about retiring should begin as soon as possible.
Ideally, you would first begin saving in your 20s once you are done with school, secure your first job, and begin collecting a paycheck.
So, what are your options?
Many companies offer retirement plans such as 401Ks and IRAs and will often match a certain percentage of your investment into these plans. For example, if you set aside 3% of your earnings to be deposited into your retirement account, your employer may also contribute 3%. That is free money for your retirement. If you start a plan early, that’s more money that you and your company are putting toward your retirement.
While that’s a lot of percentages and acronyms to pay attention to, don’t skip over the details. Planning for your future financial security is just as important as filling out your tax and health insurance forms at a new job.
What’s the difference between a 401K and Individual Retirement Account (IRA)?
While both are tax-deferred retirement savings accounts offered by employers and both allow you to make elective contributions from your salary, there are some key differences.
A 401K is a retirement savings plan sponsored by an employer. It lets you save and invest a piece of your paycheck before taxes are taken out. Most plans offer a spread of mutual funds composed of stocks, bonds, and money market investments. Over time, the money you and your employer contribute accrues and compounds generating additional income. As of this year, the IRS has increased the allowable contribution to $19,000 per year. If you’re over 50 and want to speed up your savings, you can contribute an extra $6,000.
An IRA can be offered by an employer, or you can establish your own account with a bank, investment firm or brokerage. Unlike an employer-sponsored 401K, you have more investment options with and IRA and can choose stocks, bonds, certificates of deposit, and even real estate to invest in. You can sock away up to $6,000 annually or $7,000 if you’re over 50.
With any retirement plan there are restrictions and caveats. The biggest one to consider is the costly tax penalty for pulling funds out before retirement age.
Now that you know the basics, here are some reasons why you should start planning early!
You might be able to retire early!
If you start contributing now and give your money 40 years to grow, you might be able to retire early depending on the type of retirement account you choose and how much interest you earn on your investment!
You won’t have to contribute as much over time.
Unlike those who start their retirement funds in their 50s and have to make enormous contributions each month, you can make small contributions over a longer period of time and end up in a better financial position.
You’re creating a safety net.
Retirement accounts are not meant to be tapped into early, which is why they come with hefty penalties if you do so, however, life doesn’t always go according to plan. That’s why it can be helpful to have a retirement account that can save you from financial ruin or bankruptcy! If you have to take a little money out of your retirement fund early, it’s not the end of the world.
You could travel.
What if you could spend your retirement years traveling the world instead of worrying about living on a fixed income or relying on government assistance. If you start planning now, this is a very real possibility.
You’ll have something to leave to family.
Whether or not you have children, or plan to in the future, it would be nice to leave something to those who have cared for you during your lifetime.
It will help build credit.
While retirement accounts may not be directly tied to your credit, having a demonstrated history of financial responsibility can help open up credit doors for you in the future.
Planning for retirement always starts with the right job. The Lee Group works with employers and job seekers helping them invest in their future. Contact us today to learn about how we work with companies, find executive for placements in positions across the country and openings for job seekers throughout Newport News, Hampton Roads and Richmond, Virginia.