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FEB
13
The Best Time to Save for Retirement is Now

Have you thought about how much income you will need in retirement? It becomes overwhelming to think about how much needs to be set aside to maintain a certain lifestyle after your working years have ended or what strategy is best suited for your unique circumstances. Regardless of whether someone is relatively new to the workforce or has only a few years left to earn a paycheck, there are universal benefits inherent to saving in accounts designed for retirement that can be powerful in helping you reach your mark.

The Power of Tax Deferral

When it comes to saving for retirement, not all accounts are created equal. The IRS has established designated retirement savings vehicles that present an opportunity to grow assets more efficiently than non-retirement accounts. These include traditional and ROTH IRAs as well as employer-sponsored plans such as a 401(k). These types of accounts are uniquely beneficial to retirement savers because of one powerful aspect – tax deferral on earnings. Any gains, dividends or interest earned on funds invested within an IRA or a 401(k) are not taxable to the account holder until the funds are withdrawn during retirement, allowing for more favorable growth over time. When taxes are not withdrawn from the account balance each year, as they are in a non-retirement savings account or CD, the money has the opportunity to grow more rapidly due to continuous compounding. No matter how close or how far you may be from retirement, tax deferral can make the difference between meeting your accumulation goal and falling short.

Pay Yourself First

Unique to employer-sponsored plans, those saving for retirement have the advantage of contributing through paycheck deferrals. Instead of being tempted with money deposited into a checking or savings account every two weeks, those who utilize their 401(k) through work have retirement contributions set aside before they are able to spend those funds. If your employer offers a traditional 401(k) plan, paycheck deferrals reduce taxable income for savers each year; for those who have the ability to save within a ROTH 401(k), contributions are made with after-tax funds and therefore do not reduce income annually. However, a ROTH does allow for tax-free withdrawals in retirement which provides an invaluable benefit when drawing income during retirement years.

No matter your current age or retirement savings goal, it is important to remember that contributions should be made at a level that is comfortable for you. Savers should not forego building an emergency savings, paying down high interest rate debt or funding other short to mid-term financial goals simply to save for retirement. Instead, find the balance that works best for you, and let both the power of tax deferral and paying yourself first help you reach your retirement savings goals now.



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