If you are young you probably do not think very often about getting old and probably think even less about matters like retirement. But, regardless of your age, it is important to consider saving for your golden years and the sooner you can get started the better off you will be when they come along.
One of the best and easiest ways to save money for your retirement is to take advantage of your tax-deferred 401(k) or IRAs, but there are some pitfalls with them that you need to know about. The most common is that when you retire, these savings are then exposed to the taxes that they were once sheltered from. It is important then to take care in how you save, not just in the amount.
You might believe you’ve saved enough to buy that condo on the beach for your retirement, but Uncle Sam could gobble it up if you haven’t done the right thing to avoid this problem. You may have crammed your IRA with stock funds from those giant companies, but when you retire and the taxman gets at it, it will be taxed as high as 35%. If what you are saving is extremely tax efficient, then you are not saving much by keeping it in a tax-deferred account.
You are legally allowed to make withdrawals from your IRA between the ages of 50 ½ and 70 ½, so what you should do is make regular withdrawals and place them into a tax-sheltered option such as a Roth IRA. Tax-sheltered annuity trusts are another option if your income is too much to qualify for the Roth IRA.
While saving in a bank account is better than nothing, it is certainly not the best way to invest your money. Banks don’t give very good interest rates, especially on smaller amounts, so you need to be a bit more aggressive in the way you invest. Learning about stocks, bonds and annuities is an investment in your future.
There are many online helps and calculators for retirement plans and savings. They will help you estimate how much you will need to save for your retirement, among other things. While these are helpful, the rules for retirement savings are many and complicated, so it is wise to get advice from a professional. Even if you have learned lots about investing, a professional is trained in all those finer points that you may have missed out on due to other work pressures.
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