Are You Ready for Retirement?
You may have known your dream job since childhood, but have you thought about your dream retirement? Odds are, social security won’t provide enough money to cover all of your expenses during retirement. The most secure retirement plan involves you saving your money. Here are a few things you should know that will help you prepare yourself and your finances for the comfortable retirement you deserve.
Start Saving Now
The best time to start saving for retirement is right now. According to the Department of Labor, saving $5,500 a year with 7% interest for 35 years yields about twice as much money as saving the same amount each year with the same interest rate for 25 years. That’s because of compound interest, the interest that is paid based on how much money you contributed to your savings account plus the amount of interest generated in the past. This means that you earn more interest when your money is in the account for a longer amount of time.
10 Percent or More
Many recommend putting at least 10 percent of your paycheck towards your retirement savings, but that number can increase or decrease depending on your assets and inheritance. In general, it’s a good rule to save as much as you reasonably can each month. Tools like automated money transfers and online banking will make maintaining your saving habits simple and easy.
401(k)s and IRAs
In your search for the right retirement plan, you’ll likely come across 401(k)s and IRAs. A 401(k) is a retirement savings account that large companies offer their employees. When you retire, you’ll have to pay taxes on your withdrawals from this account. Sometimes, the company will match your savings up to a specified percentage. Unfortunately, if you lose or quit your job before you retire, you’ll probably face fees and penalties for trying to roll your savings into an account that’s not associated with your former employer.
An individual retirement account (IRA), an account you can open at a bank, is another popular option. How IRAs integrate taxes varies from one account to another. Specifically, a Roth IRA requires you to pay income tax when you deposit funds. Once you retire, you don’t have to pay taxes on the money you withdraw from the account. Other IRAs offer tax benefits to people with certain levels of income. There’s more to these accounts than high interest rates. Be sure that you look at the benefits that each account has to offer.
Citizens National Bank can help you plan for retirement. Contact them today at (865) 429-7521.