Posted by : Amanda Stein Saturday, October 20, 2012
It is never too early to start planning for your retirement.
The importance of early planning
Early retirement planning gives savers the peace of mind that they will be able to retire when the time comes with enough money to support the kind of post-work lifestyle they desire. It also allows workers to be more flexible when it comes to retirement options, to take advantage of programs like employer matching funds, and to compound interest and other benefits for a much longer period of time. The simple fact is that the longer time period over which you save the greater will be the returns.
Getting started on retirement savings
There are plenty of options when it comes to funding retirement. Navigating all the different choices can seem overwhelming for those just starting their savings journey, but understanding a few of the basics can really simplify the process.
Individual retirement accounts, called IRAs, allow workers to deposit their money into a dedicated account. If the IRA is the saver’s only retirement account, there is no income tax due on the money at the time it is deposited; income tax must be paid on these funds when they are withdrawn. A Roth IRA is very similar, though there is no tax break at the time funds are deposited into the account. However, any money saved in the account can be withdrawn tax-free at any time - as early as age 59 and a half - so long as the account has been active for at least five years.
A 401(k) is another common type of retirement fund, usually offered by companies to their employees. 401(k)s give savers the benefits of group buying power, which means better interest rates, more options and less expensive investing than individual plans. Many employers also match employee 401(k) contributions, which effectively doubles retirement savings. Money is deposited into the account directly from the worker’s pay, so it is also easy and convenient. The account can be drawn on as early as age 55, and some accounts roll over even if workers change jobs or companies.
Many small businesses offer their employees something called a SIMPLE IRA, which stands for Savings Incentive Match Plan for Employees. The employer may match some of the worker’s retirement contributions using one of several different formulas. Deposits come directly from the employee’s pay and are eligible for a year-end tax deduction. A SIMPLE IRA is also a good choice for those who are self-employed.
The key to budgeting for and determining retirement savings is honesty. Those who are realistic about how much they can afford to contribute while they’re working and how much income they will need to maintain their quality of life afterward are generally the most successful when it comes to retirement planning.
How internet banking can help
Today, online banking makes it easy to keep track of retirement funds. Internet savings accounts are very popular and the interest rates are usually the best that you will find – for more information click here. Information is updated almost immediately so there’s no more waiting for monthly statements or balance sheets. Users enjoy the convenience of 24/7 banking from virtually anywhere. Researching funds or products is streamlined, and many sites provide helpful tools like calculators and visual graphs to help savers determine the products and services that are right for them.