Personal Finance and Your Future: Your Retirement Account


Some people do not feel they have the money needed right now to live on. If you are employed, you should be thinking about your retirement. Social Security will not be enough. Your employer may not be offering you a pension. It is up to you to start looking at retirement right here and now, even if it means just a few dollars per paycheck.

Compound Interest

The sooner you start to invest in your retirement, the less difficult it is to accumulate the amount of retirement investment you need and want to have to pay for your expenses. The reason behind this is compound interest. When you put money into an account earning 2 percent interest, that 2 percent not only applies to the initial investment, but also to any interest earings you have in the previous period. For simplicity sake, if you have $1000 in a retirement account at just 2 percent interest, you would have $1020 after the first cycle. This time around, that 2 percent is applied to the $1020 and after the cycle ends, $1040.40. On a larger scale and with better investments, this build up in value over time is substantial. The sooner you start saving, the more time there is for compound interest to work on your behalf.

Types of Retirement Accounts

There are a number of retirement accounts available to you. Each one offers something different and is for a specific person. Take a look at a few of the options you have and their advantages.

401K: This common employer based account makes retirement savings easy. You choose the amount you deduct pretax from your paycheck and deposit into your retirement account. Like other employer based accounts, your employer may match any amount of that investment. Your money grows tax free throughout its lifetime until you start to withdraw it.

Traditional IRA:Perhaps your employer does not offer this type of benefit to you. That is no problem. You can set up your own IRA in a local credit union, bank or investment firm. You are able to deposit up to your limit (based on your age and the tax year) each year. The funds go itno your traditional IRA before taxation and you are taxed only when you begin to withdraw from your accounts during retirement.

Roth IRA: With a Roth IRA, the funds you put into your account are taxed prior to being placed into the account. Then, the funds grow tax free throughout your lifetime. You do not have to pay taxes later when you withdraw these funds. All of the funds within your account are in fact your own for retirement.

You Don’t Have Enough

Many people believe they just do not have enough money to start an IRA or a 401k and therefore they just do not believe they can put money away for retirement. Even a small amount per paycheck will make a difference in your future. Try for $20 out of your paycheck. Increase this as you get more comfortable with having less in your paycheck. Chances are good you will not notice it and it will provide you with an outstanding way to pay for your retirement expenses long term.

Going without a retirement account is not a good idea. It puts you in a position of having to worry about how you will pay your bills. Or, you could become one of the ever growing statistics in which elderly parents are relying on their children to care for them in old age. Start today to plan for your retirement.

Categories Personal Finance

3 thoughts on “Personal Finance and Your Future: Your Retirement Account”

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