There is no time like the present
If you are established in a job or operate your own business, when should you start saving for retirement? Although there are numerous aspects to consider and complications in certain situations, the short answer is relatively simple: immediately!
If you have recently entered the workforce, the sooner you begin a program of retirement saving, the better. If you are already in the midst of your career, you should not delay any longer. And if you are nearing the traditional time for calling it quits, better late than never. Just witness the power of tax-free compounding of funds set aside in a qualified retirement plan account such as a 401(k). Assume that you can contribute $10,000 a year, and you earn an annual return of 8%. If you have only 10 years until retirement, you will accumulate $151,069. If you figure you will not be retiring for another 20 years, you can pile up $477,215 in savings. And if your projected retirement is 30 years away, you will have accumulated a staggering $1,181,340!
Of course, sometimes life can get in the way of retirement savings. For example, you might not be able to annually contribute as much as you would like due to a monthly mortgage, the need
to help pay for your children’s college educations, or health issues or other unforeseen circum-
stances. Furthermore, if you are facing a mounting debt burden, it is generally recommended
that you address that first.
Once you have figured out the “when” of retirement saving, it is time to focus on the “how.” Typically, you may be eligible to participate in a 401(k) plan or other qualified employer plan where your contributions can grow without any tax erosion. The maximum 401(k) deferral allowed for 2015 is $18,000 ($24,000 if you are age 50 or older). In addition, your employer may provide “matching contributions” up to a stated limit.
Other plans have different sorts of annual limits. See your professional advisers for more details.
Another idea is to supplement an employer-based plan with contributions to a traditional IRA or Roth IRA, or both. The combined limit for IRA contributions in 2015 is $5,500 ($6,500 if you are age 50 or older). Similar to qualified-plan contributions, these amounts can compound tax-deferred over time.
Finally, remember that you do not have to stop saving for retirement once you have retired. As evidenced by increases in life expectancies, your funds may have to carry you farther than you initially envisioned. Thus, there is no reason that you cannot continue to invest wisely throughout your retirement.
Reminder: The need to save for retirement cannot be overemphasized. Do not be a procrasti-
nator. Make this one of your top priorities this year.
Looking for more retirement planning advice? Contact Donald G. Chastain, CPA by calling (334) 887-7022 or by leaving us a message below.