This article is a part of Be Money – The first LGBT+ bank in the USA.
5 Things to Know About Saving for Retirement
Retirement may seem like it’s so far off, but it will be here before you know it. Even if you’re in your 20s or 30s, the time to plan for your golden years is now. The earlier you start saving, the more money you’ll have available during the years you can do what you want and not worry about the 9 to 5 rat race.
Even if you haven’t given retirement a second thought yet, consider these five factors.
1. The earlier you save, the more money you’ll have.
The difference between saving now and not starting for 10 years can be tens of thousands of dollars. For example, if you save at $500 a month at 25-years old, you’ll have $1.39 million saved by age 67. If you save the same amount but wait until you’re 35-years old, you’ll have $0.69 million. That’s a tremendous difference and it’s all thanks to compounded earnings.
2. Max out your employer’s 401K match.
Many employers match 401K contributions. They won’t match the entire $19,500 you can contribute in 2020, but they may contribute up to the first 5% of your salary or something similar.
Find out what your employer will match (is it dollar-for-dollar or 50% match) and up to what amount. Then make sure you contribute at least that much to your 401K.
3. Take advantage of IRA tax advantages.
If you work for yourself or you maxed out your 401K, you can still take advantage of the IRA or Roth IRA plans. Regular IRAs provide tax deductions now (the year you contribute) and you may contribute up to $6,500. Roth IRAs don’t have the tax deduction now, but your contributions and earnings grow tax-free. If you wait until you are at least 59 ½ to withdraw funds, you pay no additional taxes.
4. Don’t cash out your retirement funds if you leave your job.
Leaving your job isn’t free reign to cash out your retirement funds. Instead, roll your retirement balance over to another retirement account. It could be another 401K or a personal IRA. Just don’t cash it out. If you do, you’ll not only owe taxes on the money but also a 10% early withdrawal penalty as it counts as ordinary income.
5. Choose a diversified portfolio.
You are in charge of how your retirement funds get invested. When you’re young, choose a more aggressive portfolio – one that’s heavier in stocks than bonds. As you get closer to retirement, though, go lighter on the stocks and heavier on the more conservative investments to avoid a major loss so late in your career.
It’s more important than ever to save for retirement now. It doesn’t matter if you’re 25 or 45 years old – start saving. If you’re unsure where the best place is to start, consult a financial advisor. Discuss your retirement plans, your current financial status, and what you need to save to achieve the life you desire during your golden years.