The Benefits of Saving for Retirement

When you’re young retirement seems a long way off in the future, and the benefits of saving for retirement may not have even occurred to you. You don’t even want to think about retirement because it is synonymous with growing old.  And nobody ever imagines that they will look like their grandparents some day.  Surely by then medical science will have eliminated ageing and nobody will have to retire, or so you wish.  Long term savings is not on your mind because you need the money to buy the things you want right now.

It is likely that it will take something drastic to catch your attention: a health crisis, job loss, family emergency, friends’ financial difficulties to cause you to think for the first time about your future financial state.  Or a friend or relative who works for a financial institution might take you on their knee and say, “Listen up…,” and counsel you about the perils of pennilessness if you reach retirement age and have not set aside enough to live comfortably.

If you are married your spouse may have brought up the subject of having enough money to enjoy a comfortable old age, and having children will prod you into providing for the future if nothing else does.  Immediately, when a baby is born, the insurance  companies find out and deluge you with mail.  Sales people call to make appointments to try to sell you life insurance policies and annuities.  They can be annoying but they are doing you a favor, while trying to make a living for themselves, by prodding you into taking what might be your first step to ensuring your financial future.

Retirement Group – Insecure or Not Provided For

It is important to find out whether you have some type of retirement plan provided for you: civil service or military pension, private, 401K, and/or whether Social Security deductions are being taken out of your salary.  Some employers who pay cash for services or hire for part time temporary, seasonal jobs, casual labor, and household help, hire them as independent contractors and do not deduct Social Security from their pay.  If you are in the underground economy or an independent contractor, it is extremely important for you to set up your own SEP-IRA or buy into some type of savings bond plan.  Your problem is to earn enough to live on and still save.  The next is to report your taxable income because you have to show that to be able to save for an IRA, savings account or bond plan. This is usually the reason people do not save enough for their retirement where it can grow. Your next problem is to not touch your savings, because they have to be left alone to grow.

Retirement Group – Secure or Provided For

The company you work for may offer a 401K plan.  That is the easiest way to begin saving for retirement.  Just sign up and decide what you can afford to invest each month and they will match it.  As a civil service employee of a governmental body you will be able to be part of a pension plan instead of Social Security.  A small private employer may not offer these, but you can set up you own IRA (Individual Retirement Account).  If self-employed, you can set up your own SEP-IRA. 

Safe Investing for Retirement Income

Whether to set up a Traditional or Roth IRA depends on your income and financial position.  The Roth IRA is never deductible from your yearly income tax, but upon retirement it has two excellent benefits:  you pay no income tax on it and you can contribute to it as long as you are working.  The Traditional IRA has three disadvantages, you pay income tax on it when you withdraw from it, at age 70-1/2 you must begin to withdraw a certain percentage each year and even if working can no longer contribute to it.  Why it might be good for you is if you do not have a big income, need to have as much cash as you can, and still want to contribute the maximum or as close to it as possible, the amount contributed to it is deductible from your income tax.  If your circumstances change, you can convert it to a Roth, paying any taxes due.

CD’s (certificate of deposit) are good options because you can set them up as an IRA, even government savings bonds.  They are issued  by the FDIC (federally insured) banks so that until your IRA reaches $200,000 your savings are safe in the event of another 2008 banking crisis.  You can set up IRAs in different companies, not be confined to one bank, so as long as you put away the money, your only worry is to live long enough to collect it.  Also, as the amount in the CD or IRA savings account grows, the interest rates increase, thus making more and more money.  By then you should have converted to a Roth IRA if you had not originally.

Retirement Savings with Some Risk

Investing in real estate and stocks and bonds can be riskier, except for federal savings bonds. You can set up stock and bond mutual fund accounts as IRAs which may make a much higher interest rate than the safer CDs and government savings bonds, however they usually are sold by mutual fund and brokerage houses and are not federally insured.  The stock and bond markets fluctuate wildly, crash and soar.  Money Market Funds are fairly stable and should be safe if issued by a reliable firm, however they are not federally insured.  Mutual fund companies are usually safe because they are pooling large amounts of investors’ monies and not speculating. Bonds purchased from the private sector and municipalities are considered as fairly safe fixed income. Other options are life insurance policies that pay out after a certain age is reached or annuities which usually begin to pay out upon retirement.  Term life insurance policies are cheaper expire and do not pay out, they are not for retirement, just a fill in life insurance for family protection.  One of the benefits of saving for retirement by buying a life insurance policy is that besides providing protection for your family if you have one, whole term policies are like savings accounts in that you can borrow from them and pay them back.

You can see clearly the benefits of saving for retirement when considering keeping the basics of life available after you retire or no longer can work. You will need to have the basic necessities of life: food, a home, transportation, health needs and the moment-to-moment comforts of life.  But you don’t want to sit in your chair and just get by, either.  You want to have enough money for special events like presents for grandchildren, trips to see your children and long time friends who have moved away.  You want to have more than just necessities, you want to be able to do those special things you worked for and didn’t have time for while you were working, to enjoy leisure time with people who are special to you, go to those special places you always wanted to see.  When you are enjoying your life and having a good time without worrying about paying next month’s bills, you will be reaping the benefits of having saved for your retirement.