Retirement: What you need to know to get on track and stay there
Did you know that even someone with a modest income can retire a millionaire? The two most important factors are time and consistency. The earlier you begin saving, the better. So let’s get started with what you need to know.
How much should I save for retirement?
Most experts recommend saving between 10% and 15% of your income. Many investment sites also offer retirement calculators that can help you figure out exactly what you’ll need.
What type of account should I use?
If your work offers a 401(k) with an employer match, start there. If you don’t take advantage of the employer match, it’s like taking a voluntary pay cut.
No work 401(k)? No problem. Traditional IRAs and Roth IRAs are options you can use even if your work doesn’t have a retirement plan. With an IRA, you enjoy a tax break now. With a Roth IRA, you get a tax break when you withdraw the funds in retirement. So which is right for you?
Younger savers may benefit more from a Roth IRA because your money will have lots of time to grow, and all that growth will be tax-free when you retire. If you are close to retirement age, a traditional IRA may be a better option, because you’ll likely be in a lower tax bracket in retirement.
What else can help me stay on track?
In addition to retirement savings, you need some emergency cash on hand. If you withdraw money from retirement accounts early, you can get hit with steep penalties and fees. Open a separate savings account and try to save enough money to cover three to six months of expenses. This can protect your retirement savings.