Saving for Retirement
Life expectancy is growing and fewer companies provide pensions. And Social Security? Well, don’t bet the farm on it, because the entire system is projected to run out of money. The bottom line: don’t rely solely on an employer or the government; you need to invest for your retirement.
When investing for retirement, here’s a simple rule of thumb: First, take advantage of all employer matches. Second, invest in a Roth IRA. If your employer offers to match your contribution, do it! It’s free money. For example, if your employer will match up to three percent of your salary in a 401k, put three percent in. It’s that simple.
If you don’t have a match, or once you have contributed the maximum that will be matched, fund a Roth IRA. I am a huge fan of the Roth. Although your Roth contributions are not tax deductible, they grow tax free, and after age fifty-nine-and-a-half, all withdrawals are tax free! The downside of a traditional IRA is that all withdrawals are fully taxable. I believe the government’s deficit will lead to much higher income taxes in the future, so using a Roth will be a huge advantage.
You and your spouse can each invest $5,000 to $6,000 every year in a Roth IRA. Since there are limitations based on age and income level, check with your tax preparer to determine what you can contribute.