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Retirement Planning

Retirement funds 101

Do the terms 401(k) and IRA have you confused? There's a lot to know about retirement funds. Learn when to start saving for retirement, how to choose a fund that's right for you and how to make your savings work harder.

It's never too early to start making sure you have enough in retirement savings, especially since the average life span and healthcare costs are rising, according to Pew Research and the Health Care Cost Institute, respectively. Learn the essentials about different types of retirement funds, when to start saving for retirement and how to choose a fund that's right for you.

What is a retirement fund?

A retirement fund, generally speaking, is a special account either sponsored by your employer or established on your own to invest contributions for future retirement income.

When should I start saving for retirement?

As soon as possible. The best time to start saving is when you start earning a paycheck and have money to put away. This way, your savings have more time to accumulate and earn interest.

If your employer offers a retirement plan with a contribution match, you should consider contributing at least enough to take advantage of that additional money. The more money you put in, the more you have working toward your future retirement income.

Consider revisiting your contribution amount every year and raise it if you can.

Starting a retirement fund

If you haven't started saving, it might seem overwhelming to put $500 or $1,000 every month into a retirement fund, but by saving any amount, no matter how small, you're helping build your retirement future. Consider putting away what you can, raise your contributions when possible and take advantage of what your company has to offer.

Also consider setting up automatic contributions so the money comes straight out of your paycheck.

Different types of retirement funds

401(k)

One of the most common retirement funds is a 401(k), which is the retirement fund often offered by employers. When you start a job, you'll likely receive information on plan eligibility and how to enroll if one is offered.

Once you are eligible to participate, you might have the opportunity to receive matching contributions from your employer. This matched contribution is commonly viewed as “free money." To build your retirement savings you should consider contributing as much as you can afford up to the limit set by the IRS if your specific plan allows it. For example, in 2018 the limit is $18,500 with an additional $6,000 catch-up contribution available for those over age 50.

If you leave your job before you retire, you likely won't be able to add more money to that particular plan, but it is important to know that you will not lose that money if you're fully vested. You can leave it in that employer's plan or roll the funds into a different retirement plan should your next employer offer one and accept rollovers.

IRA

Anyone can open an IRA or individual retirement account. Unlike the 401(k), it doesn't have to be tied to your employer. You can choose between a traditional IRA or a Roth IRA. The key difference between these two is that a traditional IRA allows you to save for retirement with pre-tax dollars, while the Roth IRA is an after-tax retirement account, meaning that you can make qualified withdrawals in retirement tax-free. Roth IRAs also come with income limits that may prohibit contributions.

Annuities

Annuities allow you to turn a lump sum or series of payments into a steady retirement income stream. The most common uses of annuities for retirement planning are their tax-deferred growth and potential for guaranteed income.

 

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