Retirement Planning: A Quick Review

Retirement Planning: A Quick Review

Don’t run short of funds when you are ready to retire. Instead, by carefully planning and saving, you can enjoy the golden years. Don’t make the mistake of not making a retirement savings plan.

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IRAs and 401-Ks

There are two principal retirement vehicles established by Congress: Individual Retirement Accounts (IRAs) and 401-Ks. An IRA enables anyone with earned income to save in a tax-deferred retirement account. IRAs are often held with a major financial brokerage. You are not taxed on any interest, dividends, or capital gains until you retire, thereby harnessing the power of compounding. You can invest in mutual funds, but you can also invest in individual stocks and other securities as well.

There are two main types of IRAs: Traditional IRAs and ROTH IRAs. The ROTH version may be a better bet because you can withdraw your money tax-free when you are eligible to retire.

401-Ks are similar to IRAs but are only offered through your employer. Oftentimes, these plans offer you the opportunity to put away even more money than most IRA plans. Again, there are two types, a Traditional 401-K, and a Roth 401-K.

Avoid Costly Mistakes

There can be difficult times along the way when executing your long-term retirement savings plan. If stressful circumstances come up, remember these tips:

First, try not to raid your retirement savings prematurely. Not only will you be sabotaging your retirement, but in the case of an IRA and 401-K, you may be subject to government-mandated penalties in addition to taxes.

Second, don’t stop contributing once you begin your program. Systematically add to your nest egg each and every year to take advantage of the power of compounding.