Retirement plans are a necessary step in life for everyone. Whether you are just starting in the workforce and planning parenthood, or just beginning your college education, retirement plans are imperative to ensuring you and your family has financial security in your retirement years. If you have not thought about developing retirement plans, read on for some comprehensive information about developing a plan and building retirement savings.
Any financial advisor will tell you that if you want to ensure financial security after you retire, it is imperative that you start early and save as much retirement income as possible. Many people, who are just entering the work force, are not thinking about retirement plans. They see it as a worry for the future and not a necessary item to be concerned with now. They could not be more wrong. If you think about the cost of living increases and increased life expectancy of the average American today, you will see that the only way to achieve financial security upon retiring is to begin retirement plans as soon as possible.
An excellent first step to saving for retirement is to meet with a financial advisor. If you are young, you will only need to have an approximate idea of when you would like to retire. The rest of the planning will happen as the years progress and your needs change. A financial advisor will help you with a retirement calculator that will take into account the cost of living increases and other factors, and come up with a savings and investment plan that will help you reach your goal.
There are a variety of plans to save for the future. One of the easiest is by using the 401k plan offered by an employer. More and more employers have opted away from pension plans and instead offer 401k plans as a substitute. In a way, this is a good thing since the employee has complete control over their investments and can diversify their portfolio in any way they choose.
In a 401k plan, the employee contributes pre-tax dollars from their wages via automatic withdrawal into an investment and savings plan. The most common type of plan is a participant directed plan in which the employee chooses where to invest their money based on a variety of options available. The employee can change their investment strategy at any time based on their life changes, and can reallocate the funds into higher or lower risk options. Many employers will also offer a matching contribution into an employee's 401k fund thus increasing their savings. This is a win-win situation for both employer, and employee, since the employer gets a tax benefit from the investment and the employee gets more money into their account.
Other popular retirement plans include the Traditional and Roth IRA plans. A Traditional IRA is an individual retirement account that allows an individual to contribute monies into a savings and investment account. The contributions may qualify as a tax deduction if the investor meets all eligible criteria, one of which is the lack of an employer sponsored plan such as a 401k available to them. You may still contribute to a Traditional IRA if you have a 401k but the contributions may not be tax deductible.
A Roth IRA, on the other hand, is similar to a Traditional IRA as it is a savings and investment plan, but the contributions do not usually qualify as a tax deduction. The advantages of the Roth IRA over the Traditional IRA, is that you can withdraw contributions tax free at any time and can withdraw earnings tax free once the seasoning period and age of the investor criteria have been met. Another advantage to the Roth IRA is that you can make contributions to it without penalty regardless of whether you have another employer sponsored plan or not.
Both the Traditional and Roth IRA retirement plans have contribution limits per year and both have other specific advantages and disadvantages for savings. Before contributing to any retirement plans, it is wise to meet with an investment advisor who can help you determine which plans will meet your needs. Investment advisors will also help you with choosing the right investment in the plans based on your age, the approximate year you would like to retire, and other criteria.
Retirement plans are very important not only to an individual but also to a family. If you have not developed one yet, talk to an investment advisor to help you create one that will help you reach your goals and secure your financial future. No matter whether you are young or seasoned, a financial advisor is an excellent resource to help you with all of your retirement needs.
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