Alternative Ways to Save for Retirement
Fund an Individual Retirement Account
A traditional Individual Retirement Account (IRA) allows you to save for retirement in a tax-advantaged way.
In 2021, you can put off paying income tax on up to $6,000 that you contribute to a traditional IRA, and married couples can contribute up to $6,000 in each of their own names for a tax-advantaged total of $12,000, even if only one spouse works. This contribution limit can change each year.
Open a Roth Individual Retirement Account
A Roth Individual Retirement Account (Roth IRA) has the same contribution limits as a traditional IRA, though it’s taxed a little bit differently. You contribute after-tax dollars to a Roth IRA and can then withdraw the money, including any investment earnings, tax-free once you retire. To put it more simply you pay taxes on the front end, but there are no taxes on the back end (the exact opposite of a traditional IRA).
Fund a Health Savings Account
If you have a high deductible health plan through your employer, that means you have access to a tax-advantaged Health Savings Account (HSA). You might even pay for an HSA as a self-employed business owner.
You may only think of an HSA as a popular way to save for medical expenses, but it can also be a tool for your retirement strategy. As you get older, the savings can serve as tax-free money to pay for healthcare. That means you can avoid having to tap into other means of retirement income to cover your medical expenses. And once you turn 65, you can even withdraw money from an HSA for any reason, be it for medical expenses or retirement, without penalty.
Consider Your Saving Habits
When it comes to saving, having the right habits is just as important as having the right account. Two of the most important habits come down to time and consistency.
The best time to begin saving is now. That’s because compound interest will add up over time. Suppose a 22-year-old and a 32-year-old both put away $5,000 into savings each year, earn the same return on investments (6% annually), and both stop saving at 67 years old. With only a ten year difference, the 22-year-old would have $500k more in their retirement savings .
You’ve also probably asked yourself “how much exactly should I be saving?”. This answer won’t be the same for everyone, but experts recommend saving somewhere between 10% - 15% of your annual income.
Start Saving for the Future With Pinnacle Bank
Saving for retirement can feel like a daunting task, but Pinnacle Bank is here to make the journey feel all the easier. We offer a variety of savings and investment options. We also have an investment goal calculator at your disposal, so you can easily determine how much of your income should go towards your retirement.