Retirement: Not An Age Or Dollar Amount
Retirement does not magically happen at a certain age or when your investments hit a certain dollar amount. Retirement becomes a lifestyle when your investments make as much money as you need, to live comfortably. During our working years, our primary focus is on putting enough money away. However, as we get older and closer to actually retiring, we start to dream about what our daily life will look like, and we start making a list of things we would like to enjoy such as travel or volunteering in our community.
Retirement is a long game. The strategy and planning around retirement should focus on long-term growth, stability and the ability to continue to generate income. Working with a financial planner can help you develop your investment goals.
Types of Retirement Accounts
There are several different types of retirement vehicles and investment accounts specifically designed for retirement that can also fit in with tax planning. The type of account you begin investing in early in your career may not be the type of account you should be investing in mid-career and/or end of a career.
The most common type of account is a 401(k) or a 403(b) which are employer-sponsored plans generally with matching funds. These are tax advantageous today as you don’t pay tax on the contributions, but are taxed when the funds are withdrawn. The matching funds are like “free money” into the retirement account from your employer and help grow the investment amount.
Roth accounts allow you to invest money without a tax deduction today and allows the money to grow tax-free. This is by far more advantageous than today’s tax deduction since the dollar growth will be more than the amount of the investment as part of a long-term plan (especially if you are a young investor). Employers are also realizing the benefits of growth for their employees and many are introducing Roth 401(k)s.
Self-employed individuals can also save in SEP IRAs and SIMPLE plans. Each of these plans has very specific rules for investing, especially if you have employees. Roth and self-employed plans do have annual income limitations along with specific guidelines, but working directly with a planner can help map out the best route for you.
Your Future Self Will Thank You
Knowing the right type of account for you is the easy part. Systematically setting the money aside to build your retirement account can be challenging. Student debt, mortgages, kids’ college tuition along with daily life are all competing for your funds. You will be tempted to save in the future once you have satisfied all the needs of today.
One of the best and simplest methods to save for retirement is to, “pay yourself first.” Put aside a monthly amount, schedule it on auto draft and have that amount come from the top of your paycheck or earnings. Moving this money to another account from your general checking account doesn’t allow you to “see” the money and therefore you don’t spend it.
As you near retirement, begin thinking about how you will spend your time. After long careers, many individuals feel disconnected and unsatisfied in retirement. Consider your personality. Do you enjoy being with others? If yes, does that mean part-time employment or volunteering might be good for your mental health? Do you plan on traveling or spending more time with your family?
By creating a picture of what you want to do in the future, makes the “why” you are saving today seem big enough. Individuals often save when they have more money as they are older but saving even a little in the beginning can have a big return.
Views expressed are not necessarily those of Raymond James & Associates and are subject to change without notice. Information provided is general in nature and is not a complete statement of all information necessary for making an investment decision and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Dollar cost averaging involves continuous investment regardless of fluctuating price levels of such securities. Investors should consider their financial ability to continue purchases through periods of low price levels. Diversification and dollar cost averaging do not assure a profit and or protect against loss. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed web sites or their respective sponsors. Raymond James is not responsible for the content of any web site or the collection or use of information regarding any web site’s users and/or members. Article provided by Brandon Chase, First Vice President, Investments, 817-871-4614, 420 Throckmorton Street, Suite 830, Fort Worth, TX 76102, Raymond James & Associates, Inc., Member New York Stock Exchange/SIPC.
Other articles you may be interested in:
- Retirement: Are you Saving Enough? by Sarah Webb
- Designing Your Second Act: 5 Quick Tips For A Rewarding Retirement and More by Marilyn Suey
- Yes Ma’am! – It’s A Man’s World in Retirement by John Dittrich
- Advance Care Planning: It Always Seems Too Early, Until It’s Too Late by Jaime Cobb