Retirement: What You Need to Know

You may think that making and saving money is tough right now, but imagine in a few decades when you are 70 years old and tired of working. The last thing you need is financial stress, so there are several things that you can do to prevent this unnecessary burden. These things can be used to start saving money now and build up a nest of money that can be accessed when you enter retirement.

The first thing you should understand is a Roth IRA, which is a retirement account where money is taxed upon deposit, but is tax free on withdrawal. This is a great place to accumulate money and let it grow, and is perfect if you expect to have higher taxes in retirement than you do now.

Another important thing to understand is social security. With this program, you are paid money in retirement from the government. This money comes from taxes paid by others and also benefits those with severe disabilities. While it should not be solely relied upon for survival in retirement, it is helpful.

An additional stream of income in retirement comes from pension. When you have a job, funds are added into your pension and gradually build up over the years. When you retire, you are periodically paid from this account.

A 401(k) is similar to the pension, but you have more control over it. With a pension, the employer makes set contributions. However, with the 401(k), you are able to decide how much is contributed, as well as when you withdraw the money. Your pension is a safer plan, but you can make your 401(k) more effective in retirement.

Ultimately, saving for retirement all comes down to planning and commitment. You should always be thinking ahead and setting aside money, and should be proactive. It is smart to invest and to save when possible, so that you will be financially free in retirement.