How to Save for Your Retirement

How to Save for Your Retirement

If you are a full-time worker yet barely making ends meet, it must be scary to think of how you’ll live without any source of income. Yet, a few decades from now, you will retire from your job and will have to tackle the situation. Without adequate planning, financing your senior years could be an absolute nightmare. 

An intelligent way is to plan for their retirement decades in advance. If you learn how to save money now, you can have enough in your bank account to live the final years of your life in comfort. Here are some good retirement plans that can help you save your hard-earned money for your senior years:

1. 401(k) plans

A 401(k) plan is one of the most ubiquitous retirement plans in the United States. The 401(k) plans are tax-advantaged: you invest a portion of your pre-tax income in your 401(k), and that portion of your income is not taxed when you draw out your salary. Your 401(k) money grows steadily without tax until you draw it out at retirement. It is only at your retirement that the tax is deducted from your savings. 

A 401k plan is also an excellent option because of its convenience. Once you pick out your plan and the percentage of the income you want to save, it will automatically be deposited into your 401(k) each month, saving you from any hassle. However, note that you will be penalized if you take out your money before retirement in an emergency.

2. Pensions

You can opt for a job that offers you pension benefits. While company pensions are exceedingly rare, they can give you some financial security. You can draw out your pension for the rest of your life, whereas with other retirement plans, you get a lump sum of money you saved in your career when you retire, so you risk running out of it in case of a financial crisis or poor personal finance

However, pensions also come with some problems. The amount of money you receive depends on the time you served the company, and in case you have to leave your job, you get a lot less pension than you would have hoped for. You might end up staying in a lousy job just for retirement, which can damage your mental health and deprive you of better career opportunities. 

3. IRA accounts

An IRA account is a retirement plan the US government has created to help workers save for retirement, and these come in many types. Traditional IRA accounts work like a 401(k) plan, but you must manually deposit your savings into them. Roth IRA accounts allow you to save your after-tax income, which you can take out at or before retirement without any taxes or penalties. Spousal IRA accounts also allow your spouse to contribute to your retirement funds. Gold IRA accounts enable you to save money in the form of physical gold instead of cash. The best choice of IRA account depends upon your needs.

Endnote

It is understandable to have anxiety over your retirement plans, given the high uncertainty involved in the equation. However, with good knowledge of the available retirement plans and adequate planning throughout your career, you can subside some of these worries. Popular retirement plans include 401(k)s, company pensions, and IRA accounts, and while they all have pros and cons, one of these plans can work out well for your retirement.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.