Life Stages & Events

Saving for Retirement:
How to Get Started

Saving for retirement is a key component to creating a sound financial future. Selecting the right retirement account is the first step.

Saving for Retirement

Saving for retirement using either employer-sponsored plans or individual retirement accounts is something many people need to do to prepare for retirement. Though Social Security benefits may provide necessary financing for retirement years, it's rarely enough to provide the same or better lifestyle individuals are living during their working years. To take the first step, you may want to consider using tax-advantaged accounts on a regular basis to build value over time.

Employer-sponsored retirement accounts

Many employers offer retirement accounts in the form of pensions or 401(k) accounts. These plans allow the employee to deposit money from their pay into a retirement account. Some employers match the contributions the employee makes up to a certain percentage. Before-tax and after-tax investing is possible with this method, depending on what the employer decides to offer. Often beneficial due to employer-made contributions, these accounts are easily manageable.

Individual Retirement Accounts (IRAs)

Local banks, credit unions and financial investment firms offer IRAs, or individual retirement accounts. Most commonly invested with pre-tax funds, these tax-advantaged accounts allow funds to build in the retirement account untaxed for years. The earnings accumulate without taxation.

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What other retirement accounts are available?

There are many types of retirement accounts. These accounts, which are defined as tax-advantaged accounts meant for the accumulation of funds for retirement years, include the following:

Roth IRA: In a Roth IRA, contributions are made after tax. You'll earn income on the account and not pay taxes when you withdraw it later. You can also withdraw these contributions prior to retirement age, which is different from other accounts.

Roth 401(k): This type of retirement account combines the benefits of the 401(k) and the Roth IRA. Contributions are after taxes and funds in these accounts are not taxed later.

Simple IRA: Also known as a Savings Incentive Match for Employees IRA, this is for small companies who want a 401(k) without the costs that go along with it. Pre-tax contributions and tax deferred growth until retirement are key components of this plan.

These are just some of the Internal Revenue Service-approved retirement accounts. Consider working with a financial planner to determine which is the right way for you to begin saving for retirement.

How much do you need?

The amount you need to retire depends on many factors. This includes the debts you may have going into retirement, the age you plan to retire and the type of lifestyle you plan to live. Long-term medical care may be a factor to consider planning for as well as assisted living expenses. Though pensions and Social Security withdrawals may contribute to earnings during retirement, calculating how much you need to earn depends on the lifestyle you hope to live.

How to get started

Financial planners are professionals who can help you to plan for retirement. It's best to start young so that contributions have more time to grow, however, getting started at any age is an option. You may qualify for catch-up contributions if you're over the age of 50, too.

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This information is for educational purposes only and does not constitute legal or financial advice. You should always seek the advice of a legal or financial professional before making legal or financial decisions.