No matter your age, retirement can be a reality if you are disciplined and practice good savings habits. Investing regularly and with a clear goal can help you to build a solid nest egg for retirement. Here are a few ways to help you get there:
If your employer offers a 401k plan, take advantage of it. The money you contribute is automatically deducted from your paycheck, making saving easy. Even better, most companies match the amount you invest up to a certain limit, making the balance grow that much faster. 401k programs currently allow a maximum contribution of $18,000 per year if you’re under 50. If you’re over 50, you can contribute an additional $6,000 per year to catch up. And because 401k programs are tax deferred, fewer payroll taxes are deducted from your paycheck, which helps offset the reduction in your take home pay.
Individual Retirement Accounts (IRAs)
IRAs are another great way to save for retirement. These are special savings accounts offered by most financial institutions that have a unique set of rules. Funds can’t be withdrawn until age 59½, but IRAs may offer tax benefits. You can set up automatic deposits into your IRA, making saving an easy habit. If you’re under 50, you can contribute $5,500 maximum per year into your IRA. If you’re over 50, you can contribute an additional $1,000 per year. IRAs come in two types:
- Traditional IRAs – Contributions may be tax deductible, lowering your overall taxable income. Earnings are tax deferred, so your investments grow without incurring additional taxes until you withdraw the funds, usually at a time when you are retired and your tax bracket is lower.
- Roth IRAs – Contributions are not tax deductible, but the funds grow tax free. Since you’ve already paid taxes on your contributions, qualified distributions may be tax free.
Increase your retirement savings
If you’re already saving for retirement, there is an easy way to increase the amount. By timing your contribution increases with an annual pay raise, you’ll likely not notice a substantial change in your net paycheck, and you’ll be saving at a higher percentage of your earnings year over year. Try to increase your retirement investment at least 1% every year. Since both the 401k and IRA programs have maximum contribution amounts, you will reach the maximums sooner than you thought possible, putting you onto the path to a solid retirement.
Retirement savings can be invested in a variety of different accounts depending on your risk tolerance. If you are close to retirement or have a low risk appetite, savings, money market or certificate accounts are good options. Generally, earnings are guaranteed and the principal balance is not at risk. If you are comfortable with a little volatility, mutual funds, stocks and bonds are an option. Earnings are not guaranteed, the balance may decline, but typically the return is higher. We recommend seeking professional advice from an investment advisor to determine which option is best for you.
For more information, call a member service representative at (888) 858-6878.
Pacific Service Credit Union does not offer financial or tax advice. Please consult a tax advisor for further details.