Saturday, 23 February 2013

How to Save for Retirement

The idea of retirement is a very attractive. All of a sudden you get all of this free time that you didn’t have before, and you can do anything you want to do without a schedule holding you back. No matter if you work as an investment banker, an insurance agent who uses auto insurance leads, or a librarian, everyone needs the option of retirement to pursue other things at your leisure.

You can take up a hobby or go travel or do anything else. Retirement can be glorious. The only source of concern is money. Sure you’ll get social security and maybe a pension from your work if you are lucky,save for retirement but chances are that won’t be enough money to sustain you, especially if you have debt or a mortgage to pay off. The only way to ensure your financial comfort during your golden years is to take it into your own hands and start saving for retirement now.

Save for Retirement

You’ve got two options (well you’ve got many different options but these two are the most popular): IRA and 401(k).


IRA stands for individual retirement account. Although there are many different types of IRAs, but for the purpose of simplicity, we’ll stick to just the original. This is just like an ordinary account with a few important differences.

With an IRA you choose a term like five years or ten years. Within your chosen term, you cannot take money out until your term is up and your money has ripened. Well you technically can but you have to pay a penalty. Although you can deposit money into your IRA during your term.

An IRA also typically has a better interest rate than an ordinary savings account. The interest rates available depend on the state of the economy. When the economy is steady and growing, lending institutions can afford to offer higher interest rates.

Another benefit of IRAs is that there are special tax breaks, making these accounts even more profitable than a regular savings account.


401 (k) s are slightly different from IRAs. These retirement accounts are set up by your employer and are considered to be a benefit of your job, like health insurance. You choose how much money you want to deposit into your 401 (k) monthly. This money is then deducted from your paycheck.

There are two reasons why people choose a 401 (k): because they can deposit money from their paycheck before it gets taxed and because many employers have a matching program. Depositing money before it has been taxed means that you can put more money into your account. But keep in mind that your 401 (k) will be taxed once you take money out which you cannot do until you retire. Also, many employers will match or partially match your contributions (usually up to a certain point like$2, 500 a year) to encourage you to save for retirement.

The time to save for retirement is now. The earlier you start, the more your money will mature and the more comfortable you will be when you retire.

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