5 Tips to Start Planning for Retirement

by Traci K. on August 30, 2010

There are a lot of different options when it comes to planning for retirement: 401k, Traditional IRA, Roth IRA, Regular Savings, Money Markets, and even Stocks. All of these methods have time tested value, although some come with more risk than others. If you’re just starting to plan for retirement, this may seem like I’m talking in gibberish. Let’s simplify! Here are 5 tips if you’re just starting to save for your retirement.

  1. 401(k): If your job offers a 401(k) retirement plan (and ESPECIALLY if they match anything at all), use it. The bigger the company match, the better off you’ll fare. What this means is that if you have a company that matches 50% of your 401(k), and you save $2,000 for the year, your company will add an additional $1,000 or 50% of what you saved. It’s free money, it doesn’t get sweeter than that. Like any type of important long-term savings, put as much as you can in! The suggested percent of your total income to stash in all savings is 10%. If you can’t make that, do what you can. If you’re older, it’s more important to make that as much of an amount as possible.
  2. IRA: If you don’t have a 401(k) through your work, you should consider an IRA. Deposits to IRA retirement accounts can be deducted from your taxes at the end of the year, although there is a maximum deposit amount per year for tax purposes. There are two types of IRA accounts: Traditional and Roth. Traditional IRA accounts mean that no taxes are taken out of your money before it’s sent to your IRA. So, when you pull it out to use it in retirement you will have to pay taxes on it. A Roth IRA means you’ve already paid your taxes on that income, so when you do use your savings in retirement you won’t owe taxes on it. I opt for a Roth IRA because the idea on paying taxes on (hopefully) $50,000+ makes me stomach lurch to my throat.
  3. High-Interest: Another way to contribute to your retirement savings is by stashing your main emergency savings and/or long term savings in a high-interest account or CD (or other similar investment). These types of savings are low-risk so you won’t lose money, although the money you will gain is potentially lower than other high-risk options.
  4. Make it Automatic: Just like any savings account, make the transfer of money automatic so you forget about it and it’s not part of your incoming income.
  5. Diversify: Although this becomes more important as you get older, it can be helpful to have retirement funding in several different types of accounts. Most low-interest accounts like IRA’s, savings, and CD’s and Bonds are pretty consistent through time, but if you have some high-risk investments (like a 401(k) that’s also based on stock prices) then make sure you have other low risk investments and savings as well.
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{ 2 comments… read them below or add one }

1 ChampDog August 30, 2010 at 9:12 am

Yes, I think this is simple enough. :) May still need to focus on debt if there are any…

2 Van Dwelling Larry September 29, 2010 at 4:57 am

I really like the idea of maxing out the roth IRA every year. I wish the limits were higher, but I understand that the government doesn’t want us earning too much tax free money down the road.

If anybody happens to work for a state or local government, they might have access to a 457 plan which is very good for those interested in early retirement, since there is no 10% penalty on withdrawls before 59 and 1/2 like there is with the 401k.

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