According to the United States Department of Labor, fewer than half of Americans have calculated how much they need to save for retirement. With the average American spending 20 years in retirement, putting away money in advance is a habit worth making.
Experts estimate you will need at least 70% of your preretirement income (lower earners, 90% or more) to maintain your standard of living when you stop working. A good place to start investing is a 401(k) plan. If your employer offers a retirement savings plan, such as a 401(k) plan, sign up and contribute all you can. Automatic deductions make it easy and your company may even contribute a match.
A 401(k) might not be enough to accumulate the savings you need, so you may want to consider additionally investing in an IRA. IRAs are a powerful and flexible tool to accumulate funds for retirement while reducing tax liabilities and helping pursue financial goals. Whether choosing a Traditional or Roth IRA, you’re able to contribute up to $6.000 ($7,000 for those 50+) each year.
The primary benefit of choosing a Traditional IRA is the benefit of tax-deferred growth; you don’t owe income tax on the gains your investments earn until you withdraw them, presumably years in the future when you’re retired. If you meet the income requirements, you can deduct your annual contribution when computing your federal taxes.
Roth IRAs reverse the tax treatment, meaning you don’t have the option to deduct your contributions. However, if you meet the income requirements, all of the gains your investments earn can be withdrawn tax-free if the withdrawal is considered qualified.*
Consider contributing to a 401(k) and/or IRA to pursue your retirement goals. To fully understand your income needs, you may want to talk with one of our investment representatives to make an informed decision for building a retirement strategy.