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Saving for Retirement

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It doesn’t matter what age you are or what stage of life you are in. It’s never too early or too late to start saving for retirement. Often, however, the thought of saving for retirement can seem overwhelming. Where do you begin? What are your options?

The first step is to determine how much money you will need for your retirement. As you do so, you need to think beyond the basics to include items such as short-term and and/or long-term health related expenses. Online calculators can be helpful to help determine how much you may need. Once you’ve determined how much you need for retirement, you can begin to look at the various savings and investing options.

An Individual Retirement Account (IRA) is one choice. The two most common types of IRAs are the “traditional” IRA and the Roth IRA. The money that you invest in a traditional IRA is tax deductible. As a result, when you withdraw that money during retirement it will be taxed at the current rate at that time. Money that is put into a Roth IRA is not tax deductible, but it can be taken out tax-free at retirement. The Roth IRA has specific income limits for contributing, such as a household income maximum of $150,000 when filing taxes jointly or an income limit of $95,000 if you file taxes individually. Each IRA also has specific restrictions on the amount that can be contributed annually as well as when funds may be withdrawn.

Another option to include in saving for retirement is the basic savings account and Share Savings Certificate (which is similar to a Certificate of Deposit, or CD). While the returns may not be as high as they are on other investments, each can have its place in your retirement portfolio.

With a Share Savings Certificate, you deposit your money into an account for a pre-set period of time; it typically can be for months or years. The account pays dividends on the funds over that length of time. Share Savings Certificates are a safe way to invest money if you know you will not need those funds at the moment or in the near future. For that reason, they have been called a “wealth-preservation tool” rather than a “wealth-building tool.”

Another retirement savings option is a 401k, which is a tax-deferred, employer established retirement savings plan. When you join a 401k plan, you let your employer know how much you want to contribute to your account. That amount is deducted from your paycheck before taxes, so it decreases the amount of income tax you are required to pay. Companies also often match your contributions to 401k plans, which is like “free” money for you. Each 401k has different stipulations for joining, contributing, withdrawals, loans, contributions, and when the “free” money is “vested” -- or fully available -- to you.

If you change jobs, you don’t have to worry about losing your 401k. Again, there are specific requirements, but options do include keeping the 401k, taking a distribution, “rolling over” or moving the funds into a new qualified plan or withdrawing the money. Your employer’s HR Department will have the specific policies related to your 401k as the plans are different for each company.

When it comes to saving for retirement, the important thing is to start the process regardless of your age or stage in life.