Are You Saving Enough for Retirement?/ March 1st, 2018
If you have dreams of retiring to a sunnier climate, hitting the road in an RV, or just relaxing at home after working for years, be sure you have enough money saved for your retirement. A simple online calculator can help you determine how much money you will need and what you can expect based on your current financial situation. For an assessment that includes multiple income sources, check out the Social Security Administration’s collection of calculators to help you predict your retirement income.
When you know how much money you need, determine your next steps based on your current age, your marital status, and the ways you earn money. The IRS website lists several retirement saving plans. Find the one that is best for you.
Some people in both the public and private sectors have pensions, which are defined benefit plans. That means that as part of their contracts, employees were told how much income and exactly which benefits they would receive upon retirement. Pension funds are managed by the company or government issuing them and most perform well. However, they can be affected if companies go bankrupt or if local governments renege on their agreements.
A traditional 401(k) is another great option for retirement income. Workers deposit money in a plan managed through their employer. In many cases, employer contributions to 401(k)s are part of compensation. Your deposits to your 401(k) are from pre-tax income and taxes are deferred until you withdraw money. As with other retirement funds, contributions are limited according to your age. Because 401(k) portfolios are invested, their value is subject to market fluctuations
If you work freelance or are self-employed, a Solo 401(k) is an option. As both employer and employee, you have higher contribution limits and include your spouse in the coverage. If you own a business and have employees, you can open a Savings Incentive Match Plan for Employees (SIMPLE IRA). These plans have lower contribution limits, more rules than the Solo 401(k) and you must commit to an annual contribution level. Another option for small business owners is a Simplified Employee Pension (SEP IRA). It has higher contribution limits, but you must contribute to employee accounts at the rate you contribute to yours.
You can save additional money in a Roth IRA if you meet the income requirements. It differs from traditional retirement accounts because you pay taxes on the money you contribute, but do not have to pay taxes when you withdraw funds.
Retirements can also be funded through brokerage accounts, tax-deferred annuities, real estate, health savings accounts, and small business investments. Talk with a financial advisor at your credit union to help you choose the best retirement saving plan for you.