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Financial Independence

Retirement Saving: Start Early, Earn More

Retirement—it’s not a word you think much about when you’re young. After all, that’s something that happens when you get old.

You might think Social Security will be all you’ll need, but it was designed to supplement your retirement savings. You can’t rely on it entirely. You’ll need some other source of income to pay for your living expenses.

The younger you are when you start your retirement planning, the better off you’ll be financially when you retire.

So how should you start?

The first thing to do is see if your employer offers a 401(k) program. Basically, a 401(k) is a retirement plan your employer sponsors. Money is deducted from every paycheck, on a pre-tax basis, with the purpose of having it to use when you retire. If you’re lucky, your employer will also contribute and/or match your contributions up to a certain limit. The money is invested for you and earns compound interest, meaning you earn interest on the interest. The sooner you open a retirement account, the longer you have to make affordable contributions to it, and the more compound interest it earns.

Whether or not your employer offers a 401(k) program, you might also consider starting an IRA, or an Individual Retirement Account. There different types of IRAs, but the most common are a Traditional and a Roth. The biggest difference between them is how each one gets taxed.

Traditional IRAs/401(k) are pre-tax contributions; you will be taxed when it is time to withdraw funds.

Roth IRAs/401(k) are post-tax contributions; since you already paid taxes on the contributions, you will receive tax-free withdrawals when you retire.

There isn’t any one right way to invest money for your retirement, so it’s worth looking into the different options to see which you like best. You don’t need a lot of money to make money. You just need a lot of time. Your youth gives you that advantage.

The earlier you start saving, the more time your money has to accumulate interest. The more time you have it invested, the more time you have to figure out what system works best for you.

If you have questions about retirement services, contact our financial advisor. 

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