Growing up we envisioned a world were we controlled every aspect of our lives. To live financially well with zero worries. To live the American dream. However, the sad reality is, we need to improve our financial state of mind. Since the cost of living in this world increases each day is sky-rocketing to the highest we have seen in decades, we need to figure out how to boost our retirement plan to sustain ourselves in this troubling financial world.
Start a 401k
Is saving for retirement really worth it? The short and very prompt answer is yes. Saving for your retirement is always worth it. Let’s really think about this: You are investing in yourself and the well being of your future self not to mention your family. You are choosing not to consume today, so that you can consume more down the road. You aren’t denying yourself any pleasure, you’re simply postponing it. When you get your paycheck, set aside money for your 401K retirement plan before you do anything else. This self-discipline will help you to secure a better future for yourself when you retire.
There are more than 50 million workers around the world that actively participate in 401K plans. It could be a challenge to choose one entity over the other, with over half a million different company plans put in place. Employer sponsored retirement plans are often placed in two categories: defined benefit and defined contribution. Let’s take a closer look on what these two different categories do for one
In a defined benefit plan, the company that you work for promises to pay a defined amount to you when you retire from their company and meet certain specified eligibility criteria set from the company. Therefore, you will need to see what requirements your company puts in play to see if you would want to wait that long in order to qualify to receive your benefits with them. Usually, it’s linked with the total years of service with them and your final average salary with them. One major downfall with this is that protection against inflation is limited or uncertain. Meaning that you will get the same amount of fixed dollar even if life expenses doubled or tripled with time.
In a defined contribution, when you retire with your company you receive money in a deferred lump sum or annuity. In other words, your benefits are not defined. Therefore, you will not know the outcome in advance as you would know with the defined benefit plan. So, you are taking a risk whether the sum could be greater or lower at the end of the month.
Always take the match
Check to see if your company offers a 401k match. If so, then take it! This is essentially free money that companies offer to encourage their employees to save for retirement. Basically, for every dollar you put into your 401k, your employer will “match” it by putting in the same amount. The limit for each plan is different, but regardless of the limit, you should take full advantage of the help.
If you qualify for a Roth IRA, that is also an excellent way to save for your retirement. With a Roth IRA, you pay taxes on your investments up front. That means that you do not have to pay taxes on the interest earnings of that money in the future. If you are currently in a low tax-bracket, but expect to be in a higher-tax bracket when you retire, this is a much better option than a traditional IRA.
Today is the time to act and make your life better each time you decide to save for the future. You deserve to be worry free and confident, so resolve to improve your financial state of mind one day at a time.
by: Dennis Hung