It might not seem like something to worry about now, especially as you’re juggling student loans and car payments and trying to figure out if you can afford a vacation – but not saving for retirement while you’re young could mean you never get to retire.
The Social Security system is projected to run out of money long before millennials reach retirement age. Most employers have discontinued their company-funded pension plans; those that still offer pensions require you to work many years to become vested, or eligible to collect it, which limits your options if a better job opportunity comes along. But there are investment plans that can help you ensure you’ll be on solid financial footing. What You Need to Know to Calculate Retirement Income Needs
Most employers still offer 401(k) savings plans, in which you designate a percentage of your gross income for retirement savings. The money is taken out of your paycheck and your contributions are tax-deductible. Many employers will match a portion of your contributions, which helps you build your retirement savings even faster. There is a similar program for non-profit companies called a 403(b) savings plan. Both plans get their names from the section of IRS code that authorizes them. Start off with a 6% deduction and set it up to increase by 1% each year.
In addition, there are Individual Retirement Accounts (IRAs) that offer tax-deferred savings. As with employer-sponsored 401(k) and 403(b) accounts, your contributions to IRAs are tax-deductible for the year you make them. Do all these options make your head spin? The Retirement Dictionary can help.
Another option is a Roth IRA, in which your contributions are not tax-deferred but your earnings are tax-free if you wait until retirement age to withdraw them. Since you’ve already paid taxes on the portion you contributed, there’s no tax due when you dip into it.
A good financial advisor can help you decide.
What does retirement mean to you?
What is you’re part of the “gig economy,” working as an independent contractor? You, too, have retirement options.