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Retirement 101: Why you should start saving NOW

Retirement 101: Why you should start saving NOW

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When you hear the word retirement, most of you probably think of yourselves spending time with family or maybe enjoying a margarita on a beach somewhere after your career in the workforce. The unfortunate reality is that not everyone gets to experience this time of their lives so peacefully. The good news is if you act now and start planning for retirement early, you can save yourself a lot of trouble later. In today’s article, we will be going over the basics and what you can do to get started planning for your future now.

Setting Goals

Retirement doesn’t mean the same thing for everyone, so you need to take out a pen and paper and think about your ambitions and where you will see yourself in retirement. We recommend writing this down, and if you have trouble, ask yourself the questions we listed below.

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  • What is your ideal retirement age?

  • Where do you want to retire?

  • Do you plan on owning your own home at this point?

  • What is your life expectancy?

  • What kind of lifestyle do you want? (travel, stay at home with your family, etc.)

  • How much money will you need per month?

  • How will you fund your retirement? (Social Security, 401k, IRA, pension, investment earnings, real estate, etc.)

Consulting an Expert

Retirement is a big deal and saving for retirement is a lot of money, so once you have a general idea of what retirement means to you, we recommend you consult an expert who will help you align your finances with your goals. Your best bet for getting a personalized plan for retirement is to make an appointment with a CFP or Certified Financial Planner. Also, if you have a 401k account, most big brokerages have a department of retirement guidance that can help you plan for the future. 

Basic Retirement Accounts

Next, we will go over the three basic retirement accounts and explain some of the differences.

401k

A 401k is an employer-sponsored retirement account that allows eligible employees of a company to save and invest for retirement on a tax-deferred basis. Meaning all contributions to a 401k are pre-tax and are not taxed until retirement. This tax exemption is a great advantage because it gives you a larger sum of money to invest and grow. Below we will list the key features of a 401k account.

  • All contributions are pre-tax, and nothing is taxed until you withdraw

  • Limited to a contribution of $19,000 per year (as of 2019)

  • Funds become available without penalty at age 59 ½ 

  • You generally cannot cash out early without a hardship exemption, and even then you will usually have to pay a 10% penalty + taxes.

Traditional IRA

An IRA or individual retirement account is a government-sponsored account that allows an individual to save for retirement and invest on a tax-deferred basis, meaning all contributions to an IRA are pre-tax and are not taxed until retirement.

  • All contributions are pre-tax, and nothing is taxed until you withdraw

  • Limited to a contribution of $6,000 per year (as of 2019)

  • Funds become available without penalty at age 59 ½ 

  • You generally cannot cash out early without a hardship exemption, and even then you will usually have to pay a 10% penalty + taxes.

Roth IRA

A Roth IRA or Roth individual retirement account is a government-sponsored account that allows an individual to save for retirement and invest with after-tax income, meaning all withdrawals after retirement will be tax-free, including any growth.

  • All contributions made are after-tax, and if you wait until retirement any growth will be tax-free as well.

  • Limited to a contribution of $6,000 per year (as of 2019)

  • Funds become available without penalty at age 59 ½ 

  • You generally cannot cash out early without a hardship exemption, and even then you will usually have to pay a 10% penalty + taxes.

  • You can withdraw any contributions tax-free since you already paid taxes on it.

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Simple | Banking Review

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Acorns | Brokerage Review