Many people get nervous when it comes to thinking about retirement investing. It can be a very confusing process with complicated terms and options available. However, it is vitally important to save for your future. The earlier you start the better when it comes to saving for retirement. The successful investors are the ones who consistently put money away no matter what the markets are doing. To reach your financial retirement goals there are a couple of options available to most people.
If you work for an employer who offers a 401(k), or similar plan, it is quite easy to save for retirement. Whether or not you use the 401(k) at your job depends on a couple of factors. Many of these accounts are set up by commissioned salespeople who talk employers into using their plans. These plans often have much higher costs than if you invested on your own. Also, many 401(k) plans are very limited in the choice of funds you can invest in. You must compare your 401(k) with other investment options in order to determine whether or not is the right choice for you. However, if your company offers a match to the dollars you invest then it is wise to at least invest up to the percentage that your company matches no matter what the choices are in the 401(k). The reason is because the match that the company provides creates an automatic return on your investment.
If your company does not offer a 401(k) or you do not qualify for it than there is always a traditional IRA. Much like a 401(k), an IRA allows you to deduct the money invested in the taxes you pay. This allows you to put more money to work in your retirement account and you pay taxes later on when you take the money out in retirement. You could easily set up an IRA online with many different companies. You can set up automatic deductions from a checking account or savings which helps make investing for retirement quick and painless.
Another form of the IRA is the Roth. It is identical to a traditional IRA with one big exception. You do not receive a tax credit for the money invested in the Roth. In return, since you are to pay taxes on your investment money, you never have to pay taxes on the money you withdraw in retirement. The best IRA plans are the ones who feature low-cost investing such as Vanguard.
There are many different financial calculators online which can help determine whether a traditional or a Roth IRA is the best choice for you. There are even calculators which allow you to compare a 401(k) with investing in an IRA.
While many financial experts claim you should avoid borrowing from your 401k as much as possible, it may be your only financial life line in certain situations. Because so many people often don’t have enough or anything at all saved toward retirement, financial experts claim you could be setting yourself up for financial disaster when you are ready to retire. On the other hand, depending on your situation, it may make sense to borrow.
If you have considered other financial options such as borrowing from friends, family or home equity line of credit, a loan against your 401k may be your last option. An emergency that may be okay to borrow includes the need of living essentials such as food, grocery items and keeping utilities from being disconnected. If you have other obligations or are being harassed by debt collectors for items such as medical bills or credit card bills, negotiate a payment plan that will give you time to make payments before considering using 401k funds to pay them off.
It you have a secure job it may be safe to borrow because it helps in repaying the loan amount. You may have to consider payment amounts that would be applied to what you borrowed if they are automatically deducted from your paycheck. Also keep in mind; you may be required to pay it back during a set time period. If you leave your job before the loan is repaid, you’ll have 60 days to pay what is due. At this point, the money taken out may be subject to a 10 percent tax penalty.
You plan to use what you borrow for a smart investment. This includes using the money to purchase a home, start a business or further your education. For homebuyers, the repayment period is extended. Make sure business decisions are thoroughly researched and educational credentials will have additional value for the workplace.
If you are unable to obtain a loan at an affordable rate, borrowing from your 401k may be a low-cost loan option. People who have filed bankruptcy in the past, for example, may not qualify for a loan at a lower rate. Remember, you may still have to pay penalties for touching your 401k before your retirement age. You may save interest in choosing to borrow against your 401k but it may not make up for taking the funds out in the beginning.
Andrew writes frequently about personal finance as well as issues effecting both consumers and small businesses, covering everything from credit cards to mortgages to tax reduction.
You’ve probably heard the startling statistics: more than 80% of people are either dead, or dead broke by the age of 65. If that doesn’t have you sitting up and paying attention, then nothing will. The fact is you need to start planning now, no matter how old you are, in order to assure you are part of the 20%, not the 80%. Too many people depend on the government or their company’s pensions to survive. Sadly, in today’s world that just isn’t enough. You need to increase your investments and get a good return on them so you can have a steady income when you retire. Even just $500 a month for 10 or 15 years can assure you of a comfortable retirement. Luckily, there are strategies you can put in place starting today to increase your chances of living comfortably in your golden years.
- Cut down on your expenses: Cut down on eating out; buy clothes that don’t need to be dry-cleaned; grow your own vegetable garden; shop around for better health insurance rates (without compromising proper coverage;) buy things when they are on sale, or in bulk. There are hundreds of ways to cut down on your expenses. Find them, and then implement a plan and stick to it.
- Increase your income: Find a better paying job, or work at a second one, at least for a few months or a year; find a business to start online that pays you an affiliate income. Try freelance writing for some extra income or get involved with a network marketing company. Don’t start a business that is going to cost you hundreds to get started; you can find many that have little or no overhead.
- Sell some of your stuff: You probably have a few things around the house you’d like to get rid of. This isn’t about having a garage sale and selling old books and knick-knacks. Perhaps you have some furniture you don’t use anymore, or gym equipment. What about those expensive tools in the garage that you haven’t used in years? Have a look around and take inventory of things you can sell. Put an ad in your newspaper or online directory.
Now that you have found some cash, it’s time to choose how you’re going to invest it. The best thing for you to do is to talk to a qualified investment adviser. They will sit down with you and go over your goals and your current situation. They will be able to recommend an investment strategy that will help you get to where you want to be in the shortest time possible. Don’t just talk to one or two; interview at least three and choose one that you are the most comfortable with. Don’t be afraid to ask them questions and make sure they know what they are talking about. Are they just in it for the commission, or do they have your best interests in mind? A good financial adviser will go a long way towards you living comfortably and with dignity in your retirement years.
Johnny Guyzer has 8 years of experience working as a financial consultant and has an undergraduate degree in economics, so he has a thorough understanding of how to manage personal finances. Johnny recommends using an insurance comparison service online to compare quotes offered by various insurers to get the lowest price for Canada life insurance.