Retirement. It’s a goal that most (if not all) working class Americans are chasing. Right now, 10,000 Baby Boomers are retiring every day. But will you be ready when the time comes for you to hang up your tools of trade? Many Americans won’t be; a recent survey of people between the ages of 18 and 29 revealed that 41% of Americans in that age group have never even thought about planning for their retirement. A whopping 20% of Americans who are nearing retirement age have not put aside anything for their Golden Years, and, according to the U.S. Bureau of Labor Statistics, only 53% of the civilian workforce participates in a retirement plan.
Whether you are fresh out of college, a few years from retirement, or somewhere in the middle, now is a good time to start putting the financial services at your disposal to good use. Many financial advisors even recommend starting to save for retirement before paying off student loans– unless you have loans from private institutions with steep interest rates (7-8%, or higher). However, even if we do want to start investing for retirement, most of us don’t know where to begin.
The most popular financial services used to save for retirement are defined contribution plans (for example, a 401k), wherein the employer, employee, or both make contributions on a regular basis. A survey found that 44% of Americans making a financial investment in their retirements take part in a defined contribution plan. If you are one of the roughly half of Americans in the civilian workforce whose employers offer a 401k program, it can be a great option– the money will be automatically deducted from your paycheck, you won’t pay income tax on the money you contribute until you withdraw it, and many employers will match your contribution (up to a certain percentage of your salary), offering a great opportunity for growth. Roughly a third of employers offering a 401k program automatically enroll their employees, so you could already have one ready and waiting for you to start contributing.
But what are you to do if you’re one of the other half of Americans, those whose employers don’t offer financial services to plan for your retirement? For you, there is the IRA, or Individual Retirement Account. An IRA works almost exactly like a 401k– you still contribute un-taxed income, and you still pay income tax upon withdrawal. If you’d rather pay tax up front, you can elect to invest in a Roth IRA, and withdraw your money in retirement tax-free. Both IRAs and Roth IRAs are available through most banks, where they are offered in the form of FDIC-insured low-return rate Certificates of Deposit and as higher-risk higher-return accounts. IRAs and Roth IRAs can also be acquired through brokerage firms, and usually come with a much higher rate of return than the bank-offered CDs. Depending on your income, your contributions to an IRA could be tax deductible.
Defined contribution plans, IRAs and Roth IRAs are far from your only options for wealth management, but they do offer relatively low-risk and easy ways to start planning for retirement. What matters is that you start saving now– chances are you’ll want to retire at some point, and you’ll be glad to have something put away when that day comes.