It is one thing to realize the importance of
beginning to save for retirement, but it is quite
another to actually begin to do so. Even if a budget has
been carefully prepared it is often hard to set aside
money for a time 10 or 20 (or more) years down the road
when there are so many pressing areas where it could be
used immediately. It really comes down to one little
word: Discipline. One of the best ways to ensure that a
savings plan is carried out is to remove a portion of
your money directly from your pay check before it is
even cashed. In effect you are "paying yourself" right
off the top. This prevents the money from being spend in
a variety of other ways.
A great way to accomplish this strategy is through
the use of a 401K. A 401K is a savings plan offered
through an individual's employer. The company will
choose a group of investment funds that the employees
can place money into each pay period. The money is
invested on a pre-tax benefit, so the employee's total
taxable income is reduced. In addition the money grows
tax deferred until such time as the money is withdrawn.
The withdrawal period is aimed at retirement. If money
is accessed before the age of 59 ½, significant
penalties will be incurred.
One of the very nice benefits of the 401K is that
often times employers will match contributions up to a
certain percent. For example, they might agree to match
the first 5% of contributions. These matching funds can
be as high as dollar for dollar, but will vary among
companies. This is a great opportunity for people to
take advantage of. It's certainly not ever day that
someone offers to give you money to help fund your
retirement. If your budget allows, it is highly
recommended to fund the entire amount that will be
matched.
Self employed individuals have the opportunity to
take advantage of a Keogh savings plan. This plan does
not entail any matching funds (since the employee is
also the employer), but it does come with some nice tax
advantages. Funds are invested on a pre tax basis and
the funds grow interest free until the time of
withdrawal.
As with any savings plan the earlier a person starts
the more effective it will generally be. Make the time
this week to talk to you human resources director, or
whoever is in charge of your companies financial
programs.
