When you get your first real job where you are making more than minimum wage, you should start thinking about putting a portion of your salary aside to fund a retirement account. If you start contributing to an IRA or 401-K retirement savings plan when you are 20 or 25, you will have plenty of time for your money to compound and grow from a small sum into a large bundle of cash.
Planning for retirement is a process. You do not wake up one day and say that you are going to put money away so you will have enough to live comfortably when you retire. You have to follow a strict plan to be sure that you will achieve your goals.
Discipline is so important. Many people, young and old alike, start out strong, putting money away each month. They may get to the point where they have $10,000 or $20,000 in their tax-deferred retirement account and then decide they need some money to buy a new car. You should only take out (borrow) against your IRA in a major emergency. If you use it as a bank account, you will wind up paying a penalty and also incur a tax liability.
You should also continue to contribute to your retirement account every year up until you are ready to retire. When your employer matches part of your contribution to your 401-K, it is like getting free money. Always contribute at least as much as your employer matches. Of course it is better to fund your retirement account to the maximum allowable limit.
Paying your mortgage and other bills is important, but it is also important to pay yourself. If you are depending on Social Security to provide the income you will need when you retire, be prepared to move into an efficiency apartment in the worst part of town.
It is also important to regularly monitor your retirement account and make sure you have the appropriate investments. While your investments might have done well five years ago, times change, and they may now be under-performing the market.
Retirement planning can help you do the things you want to do after you are finished working for a living. At Financial Directions LLC, you can sit down with an experienced professional and make sure you are on the right track to a happy and financially secure retirement.
