I know what you’re thinking, what does this recent college graduate know about retirement? Well to be completely honest, until a few days ago, retirement was faraway place that only the old and wise knew anything about. Turns out, I was totally wrong. Sure retirement is not right around the corner for me, but hey, saving for it has to start sometime. And, that time is now.
Just two months ago I was saving for a pair of shoes and now after talking with my friends, I’m concerned about saving for retirement. It didn’t take long for the confusing terms and unknown lingo to give me a headache. Questions like when, where and how to save began cluttering my head. So, I went where anyone goes when they need an answer instantly: Google.
Now, I would like to say, I really should give my parents more credit for figuring this all out before the internet was around. Almost every question I needed answered came from a site I found from Google. This weeks “Pop Quizzle” (aka something I learned this week) is a little different than previous weeks. I broke it down into one question answered by a series of questions. So, here it goes: What should I know in my 20s about retiring?
Is there a right time to start saving for retirement? The answer to this question was pretty much the same across the board: as soon as possible. Much like saving for shoes, the longer you save the more money you’ll have in the long-run. If only retirement plans had a clearance section. Since I just recently began earning a solid paycheck, I’m advised to start now so my money has more time to grow. As my income increases, I plan on increasing the amount I set aside each month. If in the future my employer offers a retiring plan, I’ll at least have a basic understanding of what it’s like to prepare for retirement.
What kinds of retirement plans are there? A lot. I mean I could probably spend days researching the different types of plans available but here are just a few:
401(k) — This is the basic company plan where employees are able to make pre-tax elective deferrals through payroll deductions. Huh, you say? Basically, employees can have money put into their retirement fund without the usual income tax taken out. Employers also have the option of making contributions for participants.
IRA -An Individual Retirement Account. It is exactly what it sounds like, a savings account with tax breaks. You pay the taxes when the money’s withdrawn when you’re ready to retire. There are several different kinds of IRA’s and each has eligibility restrictions.
ROTH IRA – Like a traditional IRA (above) is that it’s an account with tax breaks. Your money grows tax free but you pay the taxes as the money goes into the account.
403(b) – A retirement plan for employees of government and tax exempt groups like schools, hospitals and churches. Employees eligible for this kind of plan save by contributing to individual accounts. Employers also have the option to contribute.
How much should I save?
Generally, it’s recommend you save 10% to 15% of your income when you start earning a paycheck. For me, that isn’t much. But like I mentioned earlier, the amount will increase as my income does. How much you save for retirement depends on the kind of lifestyle you want to have when you retire. I know, I picture myself poolside in Florida, so investing as much as I can early on is something I’ll have to plan for.
When can I retire? This question may cross the mind of many people come Monday morning. Most of the time, knowing when to retire requires you to do your research. The seven day weekend comes when the hard work pays off. CNN Money compares timing your retirement to solving a jigsaw puzzle. You have to get your moves in order before you act. Although I won’t be considering these moves for a while, it’s still important to know now rather than later. The first thing I’ll do is estimate the amount of money I’ll need. From there, I will have to consider my income I’ll (hopefully) get from Social Security and other sources.
Whew. Tons of info, I know. And that’s just the bare minimum on retirement. There is TONS of information out there. If you’re interested in learning more about retirement check out 7 Smart Retirement Choices.
Bethany’s Breakdown is a series. You can catch new posts on my credit journey every Saturday on the Quizzle Wire. If you would like to see how it all started, check out my first post Bethany’s Breakdown: What they don’t teach you about personal finance in college.