They say money can’t buy you happiness. While this might be true, money can definitely provide you aid in going through the dire times of your life, such as old age. However, it is prudent for individuals to embark on their retirement planning at an early age to ensure that they have enough time and resources to support their post-retirement expenses.
Retirement planning can be a tedious task, but you can always seek help from an accounting firm in Columbia, MD, and secure your future aptly.
Retirement planning ensures a consistent flow of income post-retirement
Retirement planning is the process of determining financial goals for retirement and how to achieve those goals. The process, in general, involves the identification of income sources, evaluation of expenses, establishing and implementing a savings plan, and also managing risks and assets. While you can start retirement planning anytime, it would work out best for you if you start as early as possible.
- You might not have a lot of money in young adulthood (age 21-35), but you will have a lot of time. So, if you start your retirement plan during this time, the compounding effect will allow you to create significant retirement savings.
- If you begin during mid-life (age 36-50), you will face burdens like mortgages, insurance premiums, credit card debts, etc. However, with an aggressive plan, you can still create valuable retirement savings.
- You can still start a retirement plan during later midlife (age 50-65) as the chances are that you have paid off most of the mortgages by this time and have higher wages, thus increasing your chances of saving big for retirement.
You can choose a plan of your choice from a variety of different retirement plans.
While there are several different retirement plans available in the market, here are the most common types of retirement plans-
- 401(k) is a retirement plan that is usually offered by the employer to allow employees to contribute a part of their salary into an investment fund, which also reduces their taxable income. The money grows tax-free until you withdraw it.
- Traditional IRA is an individual retirement account and contributions into this are generally tax-free until you withdraw it. However, the plan has contribution limits of $6,500 and $7,500 for individuals below and above the age of 50 years, respectively.
- A Roth IRA is an individual retirement plan where your contribution is taxable, but the money you withdraw at the time of retirement is tax-free.
- SEP IRA, or Simplified Employee Pension IRA, is meant for self-employed individuals, which allows them to contribute more significant amounts while also claiming tax benefits with a maximum saving limit of $66k.
- Solo 401(k) is for self-employed individuals. It offers tax-deferred growth with maximum contribution limits of $66K and $73.5K for individuals below and above 50 years, respectively.
Final Words
Retirement planning is an essential aspect of individual financial planning. With a sound retirement plan, you can rest assured and have a stress-free retirement life. While planning for retirement might not be easy, you can always seek professional help.
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