As you get older, you should be thinking about your retirement plan. Many people in their 20′s assume that it’s too early to start but that can’t be farther from the truth. I challenge 20 something’s to get going on their retirement. Lets assume you are in your 20′s and you are working your first job. If you put 20% of your annual salary into your retirement plan, the amount of money you would get at the end of your working life will be substantial due to compounding effect interest rates have on your money.
If you are in your 40′s or 50′s it’s not too late to start planning for your retirement. Although there would be more urgency because you could be facing the reality of retirement. Depending on your personal retirement goal, you would need to invest more money into your retirement fund, more around the rates of 60 to 70% of your annual salary. This of course depends on whether you have cleared your mortgage and you don’t have any outstanding debt on your credit. When thinking of retirement you should consider the following.
This is the most common retirement plan and is the one with the least amount of effort and worry. This applies to all the people who are employed and your employers are the ones who decide their pensions. The pension is paid out to you after you retire and it is determined by the number of years you have worked for the company and your salary. As an employee you would have no say in the amount of money that is used in the pension plan and how it is invested. You will get a fixed pension payment and it can be either a lump sum or a monthly payment.
Individual Retirement Account
Individual Retirement Account, IRA, is a savings account with big tax breaks. IRAs make it appropriate for retirements, as you will be able to keep money away while at the same time not be taxed for having it. Unlike pension plans and 401K plans, IRAs are opened and controlled by you and not by your employer or company. IRAs are not for everyone as eligibility of opening IRAs depends on your income amount as well as your employment status. The IRAs are divided into traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs and they all depend on what you as an individual are hoping to get. Check out this video below for some pros and cons of an IRA.
People who plan to retire use stocks as a way of investing their money. Stocks can make money for you when you are able to sell an asset for a higher price than you bought it, or if you get dividends from the profits a company makes. Dividends are normally paid either quarterly or annually and they don’t depend on the value of the stock. Stocks are known for providing long term gains as opposed to many other assets which makes it a great contender for retirement should you choose them as a part of your retirement plan. Another benefit of stocks is they can beat inflation over a long period of time.
Depending on what your retirement plan is, you should consult a financial adviser who would be able to give you advice on how to get started today.