Retirement
I have probably had hundreds of retirement discussions over the years and I must say, it can be a little discouraging hearing what others have to say.I usually hear these three top statements when the subject comes up:
I’m going to work until I drop dead;
I just don’t think we’ll ever be able to retire;
I’ll worry about that when the time comes.
And these are smart people coming up with these excuses trying to brush the topic off and move on to the next subject.It used to leave me a little puzzled and slightly angry until I realized what they were actually saying.When I read in between the line, they were really saying, “I don’t know what to do, money and retirement is all a mystery and I don’t want to feel embarrassed talking about a subject I don’t fully understand.”Once I understood this, it broke my heart and changed my outlook on where people are really coming from on the subject of money and retirement.People want more but have no idea where to start or who to believe.
Chances are, you work hard to provide for your family.You’re an honest person who cares about doing the right thing, but we get so caught up in providing dance lessons, travel league sports, nice vacations, etc. that we forget to look further down the line.I get it, there are demands on your time and money now.However, if we don’t start planning, at least a little, the end of the road will be disastrous and you’ll be living in your kid’s basement.
We all have a different view of our retirement.Some want to volunteer at a soup kitchen while others want to sit on a beach all day.There are lots of options, but the common thread for all of them is that you WILL need money.You’ll have to pay utilities, put gas or electricity in your cars, buy groceries, and the list goes on.Sure, you may not need as much money as you did when working, but you will need to provide for yourself and it appears social security will not pay enough to cover your needs.
So, where should you start?The first place I would recommend is looking into your employer's 401k plan.Often employers will match your contributions up to a certain amount of your yearly salary…which is FREE MONEY!For example, let’s say you make $50,000 per year and your employer matched your contributions up to 3% of your salary.This means if you put $1,500 into your retirement account this year, your company will also put deposit $1,500 in free money as an incentive to save.Look at that, you just doubled your money without doing anything more than setting up a direct deposit to save money for your future self.
You might be saying.“I don’t have an extra $1,500 to put into retirement.I have other bills that need taken care of now.”This may be true, but let’s break it down further.Let’s say you get paid every two weeks from your job, which would mean you get 26 paychecks per year.If you ask your employer to put 3% of your paycheck every two weeks into your 401k, it would be roughly $57.69 from your paycheck each payday.Based on these assumptions, saving $57.69 per paycheck would mean you actually save $1,500 of your own money and the company will also put in another $1,500 of matching free money. It’s almost like magic where you turn $57.69 every two weeks into $3,000 in one year.You can then invest this $3,000 in the stock market so it grows, giving you more money to fund your retirement when you are older.Even if you are not ready to save this much of your paycheck yet, that’s ok.Pick a lower number and slowly work your way up as you get raises and/or bonuses.To start, it’s all about working out your savings muscle and building the habit of putting money away.These small steps will add up to big dollars later and, if done gradually, you won’t even miss the money.Trust me, your future self with thank you!
On the other hand, if your company doesn’t offer a 401k, you do have other options.For example, you could call a brokerage company like Fidelity or Charles Schwab and have them open a retirement IRA account for you where you can make the deposits yourself.The two main types of retirement accounts are:
Traditional IRA = you put in money pre-tax (so it saves you on your tax bill now) that you can invest and grow until retirement.Once you decide your working days are over, you can begin to withdraw money from this account, but you will need to pay ordinary income tax.
ROTH IRA = you deposit money into this account after you pay taxes now.The sweet deal here is that you will never pay tax again on the money, or the money it earns. Any money you take out in retirement, no matter how much your investments have grown, will not be taxed.
Everyone’s situation is different, but if you are in a lower tax bracket now it’s likely the ROTH option will be better for you.The reasoning is, you pay the lower tax now which will free you from taxes in the future as your career and earnings go up over time.You are essentially locking in that lower tax now at your current rate and won’t need to worry about the potential for taxes to rise.What a great deal!
I hope this introduction to retirement motivates you to put something in place ASAP.I will post additional tools like retirement calculators and other resources as we go, but for now let’s concentrate on putting this into place, which will set you up for amazing success.Trust me, you of the future will thank you!