Retirement Planning - It is Never Too Late!

When Should I Start Saving For Retirement?

The answer is simple: as soon as you can. Ideally, you'd start saving in your 20s, when you first leave school and begin earning paychecks. That's because the sooner you begin saving, the more time your money has to grow. Each year's gains can generate their own gains the next year - a powerful wealth-building phenomenon known as compounding.

Here's an example of what a big difference starting young can make. Say you start at age 25, and put aside $3,000 a year in a tax-deferred retirement account for 10 years - and then you stop saving - completely. By the time you reach 65, your $30,000 investment will have grown to more than $472,000, (assuming an 8% annual return), even though you didn't contribute a dime beyond age 35.

Now let's say you put off saving until you turn 35, and then save $3,000 a year for 30 years. By the time you reach 65, you will have set aside $90,000 of your own money, but it will grow to only about $367,000, assuming the same 8% annual return. That's a huge difference.

Where Should I Save My Retirement Money?

Tax-favored retirement accounts such as individual retirement accounts (IRAs) and 401(k)s are the best places to save for your retirement. The different types of plans have different features, but most of them allow you to defer taxes on the money you save and the returns you earn within the account.

"Tax deferral" means that the amount you contribute escapes the usual income taxes until you start withdrawing the money years later. As a result, more of your money can earn investment returns over time - an enormous advantage over ordinary taxable accounts.

The plans have other advantages as well. For example, many employers will match part of their workers' contributions to employer-sponsored retirement plans such as 401(k)s.

How Should I Invest the Money?

It is highly recommended that you establish a sound financial foundation before investing in stocks. Debt management is critical as well as establishing a sufficient emergency savings fund. Once that is in place then exploring a diversified portfolio mix of assets that is congruent with your risk level is important when investing in the stock market.

Content derived from CNN Money

Written by dvdscttbckr on Tuesday October 20, 2015
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