Retirement Planning 101

For many people, having a long, fruitful career is followed by the next phase in life, retirement. Retirement is a rewarding part of life that should be spent with friends and family, but the road towards retirement will be much smoother and enjoyable with a retirement plan. It is important to note, it is never too late to start saving for retirement.

One huge way to plan for retirement is to open a retirement savings account as soon as possible in order to reap the benefits in the future. A couple retirement savings accounts you may have heard are Roth IRA and 401K. I will be discussing what both of them are, benefits they may contribute and differences between the two. Although, there are many other retirement plans, I will be discussing these two because of accessibility and relevance. A Roth IRA is a contribution savings account that is usually managed by the individual, rather than being tied to an employer. A huge benefit for having a Roth IRA is that there is no age limit for contributing to a Roth IRA, meaning you can start now. Any investment earnings will be tax free in a Roth IRA but taxes will be paid upfront on your contributions to the retirement plan. Additionally, qualified withdrawals from this retirement plan will be tax-free. 401K retirement plans are provided by employers and are contributed by the employee and employers alike. A portion of your check will be contributed to the account and your employer will also contribute a percentage into the account, as well. A huge benefit to a 401K is rollovers. If you have a 401K plan with an employer, for the most part, if you obtain a new job and employer, the 401K plan will rollover to the new employer. Money saved in a 401K may be invested in numerous ways and will not be taxed immediately, helping investments grow over time, tax-free.

Another great way to plan for retirement is saving and investing for the future. Besides a retirement savings account, it is wise to save additional money for retirement. According to the United States Department of Labor, "only half of Americans have calculated how much they need to save for retirement." this statistic is astonishing because this means that half of Americans are underprepared for the future. The average American will spend twenty years in retirement, for most people that is one fourth of their lives, so saving for that last portion of your life will be crucial in the long run. A great method of saving is to start saving small amounts and every month increase the amount you save little by little. Another important piece of advice is to not use any of your retirement savings. Most retirement plans will penalize the owner if they withdraw contributions from a fund too early. Investing will also be a great contributor in the long run towards retirement. a few rule of thumbs when investing is to have a diversified portfolio of different stocks, bonds, etf's, and real estate in order to minimize risk. Furthermore, investing long term is generally the way to go when looking at returns on investment.