Though it seems like it’s a long way off, retirement is something you have to start saving for early in life. Think back to when we discussed compound interest. The benefits of compound interest are most clear when talking about retirement. If you start investing in your 20s, you’ll have a lot more money at retirement than if you start investing later in life.
If you’re wondering how much you should save for retirement each month, the answer is as much as you can. Some plans have restrictions on how much you can set aside each year. The closer you get to that limit the better. The more money set aside now, the more that money will grow.
Check out the links below for more information on saving for retirement.
For the employer-sponsored plans, what you have access to may vary based on where you work. In the private sector, employers may offer a 401(k). In the non-profit and public education sectors, the 403(b) is common. Make sure you understand what options are available to you and how they work. If you have questions, talk to your employer’s Human Resource Department.
There are a number of benefits to participating in employer-sponsored retirement programs, the primary one being that employers often contribute to your plan as well. That means free money for you! Another positive is that the money you contribute is deducted from your paycheck before taxes. You don’t have to pay taxes on the money until it is withdrawn.
An IRA, or Individual Retirement Account, is another type of retirement plan. The most common options are the Traditional IRA and the Roth IRA. Sometimes you can contribute to these through your employer, and sometimes it's on your own.
Roth IRA’s are usually encouraged for younger people, because you will probably be in a higher tax bracket when you retire than you are in right now. However, make sure you talk to a financial specialist to determine which account best fits your needs. The IRS has a helpful comparison chart you can look at, as well.