Retirement 101


To make your retirement dream a reality, you have to start saving now. Kayla Johnson offers sound advice on how to do this.

You can see it, right?

You're on the beach with a cocktail in hand…or in the mountains soaking up the clean air…or in your house napping all afternoon. No worries about money or responsibilities or bills. Am I talking about college? No, I’m talking about your dream retirement.

To make this dream a reality involves a lot of planning.  And you need to start now—yes you, 22-year-old college grad!  Here’s why:

Saving $150 a month starting when you’re 25 will add up to $45,000 (without interest) by the time you reach age 50. If you started saving just 10 years later at age 35, you will have to save $100 more every month (that’s $1,200 more a year) just to reach the same goal.

And this doesn’t include the interest you’ll gain by saving in a retirement account.  There are lots of benefits to putting your money into a retirement account instead of under your mattress.

Here are some options you might consider:

Roth vs. Traditional IRA

One of the most common questions we get is, “What’s the difference between a Traditional and Roth IRA?” Here is a very basic breakdown:

Traditional IRA:  With this product, you reduce your current taxable income by the amount you contribute, and you aren’t taxed on your investment earnings while your IRA grows.  When you withdraw money from your IRA during retirement, the amount you withdraw is taxed as ordinary income.  With some exceptions, you cannot withdraw the money until you are 59.5 years old without a 10% penalty.

Roth IRA:  With a Roth, your contribution is made with after tax money and is not tax deductible, but you won’t have to pay income tax on this money when you withdraw during retirement. You can withdraw your contributions from a Roth IRA at any time without a penalty.  With some exceptions, the earnings cannot be withdrawn until you have held the account 5 years and you are at least age 59.5 without incurring a 10% penalty.

Employer Sponsored Retirement Fund: 401(k), 403(b) or 457

An employee sponsored retirement fund is a simple and convenient retirement account that you can only get through your employer and it is funded by money taken directly out of your paycheck.  This is often the best way to start saving for retirement because it involves “mindless savings”—you choose an amount to come out of each paycheck and it automatically goes into your 401(k) for example, making it seem like you never had the money to begin with!

A 401(k) is probably the most common and most well known option.  Often times your employer will “match” the contribution you are making to your 401(k)  up to a certain percentage.   This is a great way to take advantage of some “free money” from your employer, so make sure you are contributing at least as much as they match to begin with.  For example, your employer might match “up to 4%.”  This means that if you contribute 4% of every paycheck to your 401(k), your employer will contribute that same amount.

Traditional 401(k) plans grow tax-deferred, meaning you’ll pay taxes when you take the money out during retirement, not when you put the money in.

Written by Kayla Johnson

This blog post is from the Author's perspective and doesn't speak for brightpeak financial. Contact brightpeak if you want to know more about brightpeak products, and keep in mind that they are not available in all states and there are some limitations (some exclusions and restrictions may apply).

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