It’s never too early, or too late, to start planning for your retirement. However, like all long-term saving goals, retirement should ideally be planned for as much in advance as possible. That’s because the more time you allow your savings to grow, the bigger the nest egg will be when it’s time to cash in on your funds. Here’s how to get started on planning for your retirement.

Set a target number

Before you start putting away money for the future, determine how much you’ll need to have saved for living comfortably and independently throughout retirement. Experts recommend taking your current living expenses and multiplying that number by 400 to reach the amount you’ll need for sustaining yourself. You can also use our Save for Retirement calculator to help determine how much you’ll need to save.

Choose your retirement accounts

Next, you’ll need to select the right account for your retirement savings. Here’s a quick review of the three most common types of retirement accounts.

401(k)

If you’re currently or previously employed, you may already have a 401(k) that’s collecting money for your retirement, and investing it so it can have an opportunity to grow. Take advantage of this retirement tool by maximizing your contributions. Additionally, many employers will match a portion of, or all, your contributions, which is literally free money that will help your investments grow, tax-deferred.1

IRA

An Individual Retirement Plan (IRA) is a retirement fund that allows your money to grow tax-deferred, but withdrawals are taxable. Like a 401(k), some employers will match a portion of, or all, contributions. However, there are federal limits on how much you can add to your IRA annually.

Roth IRA

A Roth IRA is an Individual Retirement Account that you contribute to with after-tax dollars. It does not feature tax-deferred growth, but qualified withdrawals are not taxed.1

Pros and cons

Here’s a brief summary of the pros and cons of the different retirement account options for easy comparison.

401(k)

Matching Funds: Yes
Tax-Deductible: Yes
Tax-Deferred Growth: Yes
Taxable Withdrawals: Yes
Maximum Yearly Contribution (2022): $20,500
Maximum Yearly Contribution Age 50+ (2022): $27,000

IRA

Matching Funds: No
Tax-Deductible: Depends on income, tax-filing status and other factors
Tax-Deferred Growth: Yes
Taxable Withdrawals: Yes
Maximum Yearly Contribution (2022): $6,000
Maximum Yearly Contribution Age 50+ (2022): $7,000

Roth IRA

Matching Funds: No
Tax-Deductible: No
Tax-Deferred Growth: No
Taxable Withdrawals: No
Maximum Yearly Contribution (2022): $6,000
Maximum Yearly Contribution Age 50+ (2022): $7,000

Select a target date fund

If you’re saving for retirement through the use of a 401(k), be sure to check if your employer offers a target date fund. This refers to your planned retirement date. You’ll know your employer offers a target date fund if there’s a calendar year in the name of the fund, such as “B.K. Holdings Retirement 2055 Fund”. Simply determine an estimated guess of the year you intend to retire, and then pick the fund with the date closest to your anticipated retirement date. A target date fund is a smart choice because it spreads the money in your 401(k) across many asset classes, such as large company stocks, small-company stocks, bonds and emerging-markets stocks. Then, as you near the target date, the fund becomes more conservative, owning less stocks and more bonds, automatically reducing your risks as you near the date of your retirement.

With a bit of work and a lot of planning, you’ll have your future secured in the best way possible. If you’d like more information regarding retirement account options, please contact us.2

¹Consult with a qualified tax professional for specific tax advice.

²Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor.  Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.
 

CFS representatives do not provide tax or legal guidance. For such guidance, please consult with a qualified professional. Information shown is for general illustration purposes and does not predict or depict the performance of any investment or strategy. Past performance does not guarantee future results.