Financial security doesn't just happen. It takes planning and commitment and, yes, money. Here are some tips on how to reach financial security from the Employee Benefits Security Administration.
Know your retirement needs
Retirement is expensive. Experts estimate that you'll need about 70 percent of your preretirement income – lower earners, 90 percent or more – to maintain your standard of living when you stop working.
Find out about your Social Security benefits
Social Security pays the average retiree about 40 percent of preretirement earnings. Call the Social Security Administration at 1.800.772.1213 for a free Social Security Statement and find out more about your benefits at www.socialsecurity.gov.
Contribute to a tax-sheltered savings plan
If your employer offers a tax-sheltered savings plan, such as a 401(k), sign up and contribute all you can. Your taxes will be lower, your company may kick in more, and automatic deductions make it easy. Over time, compound interest and tax deferrals make a big difference in the amount you will accumulate.
Put your money into an Individual Retirement Account
You can put up to $4,000 a year into an Individual Retirement Account (IRA) and gain tax advantages.
When you open an IRA, you have two options – a traditional IRA or the newer Roth IRA. The tax treatment of your contributions and withdrawals will depend on which option you select. Also, you should know that the after-tax value of your withdrawal will depend on inflation and the type of IRA you choose.
Don't touch your savings
Don't dip into your retirement savings. You'll lose principal and interest, and you may lose tax benefits. If you change jobs, roll over your savings directly into an IRA or your new employer's retirement plan.
Start now, set goals, and stick to them
Start early. The sooner you start saving, the more time your money has to grow. Put time on your side. Make retirement savings a high priority. Devise a plan, stick to it, and set goals for yourself. Remember, it's never too early or too late to start saving. So start now, whatever your age!
Consider basic investment principles
How you save can be as important as how much you save. Inflation and the type of investments you make play important roles in how much you'll have saved at retirement. Know how your pension or savings plan is invested. Financial security and knowledge go hand in hand.
These tips point you in the right direction. But you'll need more information. Talk to your employer, your bank, your union, or a financial adviser. Ask questions and make sure the answers make sense to you. Get practical advice and act now.