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Retirement is not something that everyone really wants to think about, because it means you are getting older. However, it is a necessary and enjoyable way to spend the rest of your years once you’ve built up a nice pile of cash. When you retire is completely up to you and there isn’t a set time limit to how long it should take you to save your desired amount of money, especially if you rather not work until you die.
Many people think of retirement as a fresh start. A new beginning to focus on the things that are really important, such as spending more time with family, going back to school, having the freedom to travel and pursue other interest and doing what you truly love, even if it is starting a new career path, even.
If your workplace offers a 401K plan, than consider this an opportunity to get a head start if you’ve just got out of college. If you are already approaching retirement age or are pondering retiring early, now is a good time to start considering all that a 401K plan can do for you, whether you are self-employed or work for a company.
#1) Money For a Rainy Day
Even if you’ve already begun planning for retirement, it’s never to soon to also have pocket change saved for a rainy day. First and foremost, expenses should be factored into your savings plan. How much are you going to need for entertainment, clothes and other areas to maintain your lifestyle? If you find yourself living from paycheck to paycheck, then it is important to chart what exactly you are spending so that you can scale back on areas that you can do with less of, such as cable, a gym membership or other things that you are paying for but aren’t using as well as non-essential factors, such as clothes for.
There are plenty of apps that can help you to become conscious of what you are spending. Mint.com is a great tool to help you plan better and spend smarter by helping you to categorize your spending, pay bills and even help you to invest for retirement. The gist of it is having all of your finances organized site for easy tracking. If retirement is on your mind, then this options might be perfect for you to get a head start in saving for the future.
#2) Go For It
Not all employers offer retirement plans, in which case, you might want to consider opening up an IRA and make monthly contributions to that. A 401k plan is something that many employees do offer, which is a retirement savings plan in which a chunk of money can go towards your savings before taxes are taken out. While 401K plans helps one to save, there are many restrictions but on it by the federal government. In many cases, if you have not been at your employer long enough, you will not be able to tap into your savings until a particular set period of time. There are also penalties set if you withdraw money before retirement age.
IRA funds, on the other hand, offer long-term growth opportunities in which you also have the opportunity to withdraw money depending on what type of IRA plan you choose. In many cases, taxes are not applied to IRA’s until retirement when money is withdrawn.
Many businesses choose not to offer 401k plans because of the high costs. However, being the source of information for your manager might help to change that. Businesses that incorporate 401k’s are less likely to have a high turnover rate and have a higher change of keeping existing employees which is an overall good thing for any company. When trying to convince your boss to add a plan to your benefits, this fact may help.
#3) Matching Is Best
Investing in a plan that enables matching is the best way to go to make the most out of your investment. If you have a plan that matches a certain percentage of your income, you’re that much closer to retirement. If you make about $50,000 per year and you invest about 3 percent of that, then the investment firm will match exactly that much.
However, some companies require you to be fully vested, meaning that you’ve worked with them for a certain amount of time before you’re able to reap the benefits of your contributions. For example, you may be required to work at a job for about 3 years, but if you quit before then, you will not earn any money your employer has matched or just a minimal amount.
You should also know that there is a limit placed on the amount of money that can be contributed at any given time. As of the year 2015, the contribution limit is $18,000 if you’re under 49, with an additional 6,000 for those over 50. However, your matched contribution from your job doesn’t count.
It’s important to learn the ins and outs of 401k investments before you reach retirement age. Although you may not see it now, years from now, these tips will come in handy for when you need it most.
Are you already investing for retirement? What type of plan fits your lifestyle best? Give us any suggestions with you think may be useful. We fully appreciate your input!