Step 10 of 12 Steps to Financial Wellness – Plan for Retirement
It’s never too early – or too late – to plan for retirement. However, the more time you allow for your savings to grow, the bigger the nest egg you’ll have when it’s time to cash in.
Here’s how to get started on planning your retirement.
Set a target number
First, determine how much you’ll need to have saved for living comfortably and independently throughout your retirement. Experts advise taking your current living expenses and multiplying the number by 400 to identify the amount you’ll need to sustain yourself based on a 4% return.
Choose your retirement account strategy
Next, you’ll need to select a place to keep your retirement savings. There are many options to consider, some of which you may already have if you are, or have been, employed. Here’s a quick review of the two most common retirement accounts:
If you’re employed, you likely have a 401(k) that’s working toward collecting money for your retirement. Take advantage of this retirement tool by maximizing your contributions. Also, many employers match a portion of (or all) contributions you make, which is basically free money, to help your retirement savings grow, tax-deferred.
There are two popular kinds of Individual Retirement Plans (IRA): Traditional IRAs and Roth IRAs. A Traditional IRA will let your money grow, tax-deferred, but withdrawals are taxable. A Roth IRA does not feature tax-deferred growth, but qualified withdrawals are not taxed. Like a 401(k), some employers match a portion of (or all) contributions. But, there are federal limits on how much money you are allowed to add to your IRA each year.
The table below shows a brief summary of the pros and cons of each retirement vehicle for easy comparison.
|Tax-Deductible||Yes||Depends on income, tax-filing status and other factors||No|
|Maximum Yearly Contribution (2022)||$20,500||$6,000||$6,000|
|Maximum Yearly Contribution Age 50+ (2022)||$27,000||$7,000||$7,000|
After you’ve selected your retirement fund, you’ll also need to choose somewhere to invest. With a bit of work, and a lot of planning, you’ll have your future secured in the best way possible.
Explore the IRA accounts and Share Certificates offered at Olean Area Federal Credit Union today!