Fund Your Retirement: Know Your Options

Retirement doesn’t have to be a stressful time where you have to stick to a tight budget so you don’t run out of money. If you start early and you save smartly, you’ll be set up for a relaxing and luxurious retirement. It’s good to understand your basic options before you start talking to your financial planner or your employer. Decide which strategy is appropriate for your lifestyle, and don’t fully depend on social security. Here are five retirement options to help you fund your post-work life. Think about combining some of these options for the best payout. 

401(k)

retirement

Image via Flickr by Tax Credits

The 401(k) is one of the most popular retirement plans for employees in the corporate world. Generally, you decide how much you want to contribute to this fund, then your employer takes that amount from your paycheck and deposits it into your account every paycheck. However, some companies match your investment to boost your retirement fund.

Though you may be worried about the smaller paychecks you’ll receive because of your 401(k) plan, you’ll reap greater tax benefits for contributing to it.

IRAs

IRAs are individual retirement accounts which are savings accounts with a big tax break. You can keep stocks, bonds, mutual funds, and other assets all in one place. You open it on your own as oppose to your employer opening it. If you’re an independent contractor or you work for yourself, an IRA is a good option for retirement funding.

There are several different types of IRAs. There are traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs. Each has restrictions based on your income and employment. All IRAs have limits on how much you can contribute each year. They also have penalties of you take money out before your designated retirement age.

The two most popular IRAs are Roth IRAs and traditional IRAs. The difference between the two is that with traditional IRAs you pay taxes when you withdraw the money in retirement, whereas Roth IRas are the opposite. With these, you pay taxes initially and then have no taxes to pay when you withdraw the money. Regardless of which IRA you choose, your money grows tax-free.

Annuity

An annuity is another option for funding your retirement. It is an insurance product that pays out income. It’s used as part of a retirement strategy so that you receive steady income during your retirement years. To start investing in your annuity, contact a financial advisor. They will tell you about the benefits of annuities.

Basically, you make an investment annuity and then it makes payments to you on a future date or series of dates. These payments can be made monthly, quarterly, annually , or even in a lump sum payment.

The different types of annuities include a fixed annuity which is a gguaranteed payout, or a variable annuity which is a payout stream determined by the performance of your annuities underlying investments. You can turn to Fisher Investment’s Pros and Cons of Variable Annuities video to learn more about variable annuities.

Investments

Whichever retirement plan you decide one, it’s important to start investing as soon as you enter the working world. When you start at an early age, your interest earns interest year after year. This is called compounding, and the effects of compounding can add up to a lot. Even if you decide to switch retirement plans or have to contribute less as you get older, you’ll still make more money if you invest early because every year that money earns interest.

Social Security

Established in 1935 by the Social Security Act, Social Security is a safety net for older americans. It’s intended to fund Americans of retirement age. The money is funded through contributions workers make to it through each paycheck. So if you’re in the working world, you’re already contributing to Social Security through your taxes to the Federal Insurance Contributions Act (FICA). Once you retire, you’ll receive benefits.

The Medicare program is separate from Social Security even though taxes are taken from your check in the same way, and both go toward older Americans.

Financial stability will help you enjoy your retirement to its fullest. Don’t work your whole life only to reward yourself with nothing. Instead, start saving and investing now so you can have a luxurious retirement.

2 Responses to Fund Your Retirement: Know Your Options

  1. I think sometimes the amount we need to fund retirement is so overwhelming we fail to get started. It’s important to have a comprehensive plan that includes more than saving money. Our plan includes things like paying off our mortgage, downsizing and paying cash for that home, staying out of debt, etc. I even priced out in today’ dollars several dream vacations we want to take and have a separate savings plan for those trips. We may take one or two before we retire and, of course, the money can be used for other things. I just think it is more exciting to save for fun things than for “retirement.”

  2. Nice list! I like the idea of using an immediate, fixed annuity as a guaranteed time period income stream during retirement, but am not yet convinced that using a variable deferred one is advantageous for saving for retirement over a traditional taxable mutual fund. More investigation/analysis needed there on my part! :)

    One thing that I have found folks overlook with 401ks is that employers are fairly often offering a Roth 401k option, and all people need to do is sign up for it.

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