Many Americans are planning for retirement earlier than ever. While the reality is that tough economic conditions may force them to retire years later than they wanted, this is having the dual affect of encouraging more foresight and planning. With an increasing number of families struggling to afford college tuitions, student loan payments, mortgages, and general costs of living, it’s never been more important to look into retirement options. Nearly all financial institutions, including the Aurora Bank, provide detailed explanations of the following plans and options, but here’s a brief breakdown of the most reliable retirement savings strategies:
Check out your employer’s pension plan. Many companies offer their employees deferred payments at the time of their retirement. These are employment based pensions, also known as retirement plans. Other pensions include social and state pensions and disability pensions. Pensions can come in the forms of IRAs and 401(k)s—see below for more.
Pay into an employer-run retirement savings plan. A 401(k) plan, for instance, allows employees to reduce taxable income while creating a nest egg for later in life.
Pay into an IRA account. There are two options here: the regular IRA and the Roth IRA. They both grow without being taxed. The difference between them involves taxation upon withdrawal. With the regular IRA you pay taxes on the money on the back end, when you withdraw the money. With a Roth IRA your savings are taxed before being put into the account, but can be withdrawn tax-free. The other main difference is that there are income limits on the Roth, meaning you have to earn a certain amount. The Roth tends to be more flexible as far as withdrawing early.
Don’t take money out of your retirement savings. Taking money out of your retirement account before you retire will make you lose principal and interest. There may also be additional taxes and penalties. Put the money away in a fixed rate savings account or your best bet is to transfer that money into an IRA account.
Educate yourself about social security benefits. Social security usually gives you about 40 percent of your pre-retirement income and is widely viewed as one of the best security nets for retirees.
Invest safely in defensive industries. If you absolutely feel you must invest in stocks, pick defensive industries, or non-cyclical ones like alcohol, condoms and other recession-proof staples. These make for better long term investments than ones in volatile industries.
The economic slowdown has forced many retirees to rethink their situations. And it has forced many pre-retirement workers to take extra precautions and change their investment strategies. For any adult planning to retire someday, it’s worth taking the time to look into your options and make a game plan for how to best save for the future.