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Retirement Basics

by Bryan Smith

Start saving and investing for retirement today, and you may find yourself way ahead of your peers financially by the time you reach 50 or 60. A well-funded retirement has much more to do with how much you save than how much you make!

Budgeting and savings for retirement is hard but consider this: you are likely to live 25-30% of your lifetime without a paycheck (except for Social Security -assuming it’s still around when you retire.)  It’s important to live within your means and budget a portion of what you make to retirement savings. Clients always ask; “How much should I save for retirement?” To start, any amount is better than nothing – but, ideally, you should save 10% or more of what you earn.

Good Men Great Dads Investment

Good Men Great Dads Investment

For example; Let’s say you contribute $4,000 into an IRA (individual retirement account) when you are 30 years old in an investment account that earns a consistent (albeit hypothetical) 6% a year. Even if you never made another contribution to that retirement account again, that $4,000 would grow to $30,744 by age 65. If you were to replace that onetime $4,000 with monthly contributions of $400, your retirement fund would be worth $565,631 at 65.

Roth IRAs are another option for saving for retirement.  In fact, the younger you are, the more attractive Roth retirement accounts look.  Roth contributions are not tax-deductible, but the growth you earn is tax-free. You can also withdraw the earnings tax-free once you reach age 59½ or older. (The account must be open for at least 5 years before tax-free withdraws are allowed.)

Some employers also offer to match part of your 401(k) contributions. When you are considering how much to contribute to your companies 401(k), make sure you are investing enough to take advantage of the full employer match. Contributing enough to get your full match will make your overall retirement savings effort easier.

For example; Let’s say your employer is matching 50 cents for every dollar you contribute up to 6% of your pay. If you contribute 6% of your income, your employer will contribute 3%!  That’s a 9% savings rate, and you get a tax deduction!

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