Many people do not consider savings for retirement until their late 30s or 40s. Financial advisors suggest starting as soon as possible. Recent college students, in particular, are not informed on the importance of saving for retirement. This is the furthest thought from their minds. You must take advantage of the various retirement plans that are available to you and start as early as you can. 40 years of saving money will definitely benefit you by the time you reach retirement. Now that you know how important retirement is, let’s take a look at two retirement plans that can help you start saving now.
The 401(k) Plan
In terms of retirement plans, everyone has heard this term, either at work or in the news. The 401(k) plan is a program that is offered through your employer. Essentially, a certain percentage of your funds is taken from your paycheck and placed into a savings plan. This money will continue to acquire until you reach retirement age. Some employers even match your savings by 100 percent so that you can save even more. This is also a great incentive to stay at your current job longer.
The money you save is also tax-deferred, which means that you will not have to pay taxes on it until you begin to draw from these savings. In addition, do not worry about not having access to all of your money by retirement. One hundred percent of your 401(k) plan is vested so you will get everything back and will acquire interest as well.
The only drawback to this plan is that you will be penalized for taking money from this account early. These plans are intended for use only after the age of 59 ½. The government will penalize you for using these funds any earlier. Try not to dip into these funds unless it is an emergency and you cannot obtain money from credit cards, loans, mortgages, or friends and family.
Life Insurance as Retirement Plans
If your company does not offer the 401(k) plan, there are other options for retirement available. One option involves something you already have: life insurance. First of all, it is important to have life insurance in case something happens to you. You need to make sure your spouse or loved ones will be taken care of if something happens to you. Take the time to search insurance plans and select the one the fits your needs. Now, in terms of retirement palm, life insurance can help you save money for the future. Some life insurance helps you build cash value and increase your benefits. To obtain these extra funds, you will have to get a permanent life insurance policy.
Most of these policies contain the added value option that works like a savings account. Whenever you need some extra money for expenses, bills, or maybe a vacation, it is available to you. Unlike the 4101(k) plan, you do not have to wait until retirement age to make withdrawals. This “cash” is more like a loan you take out with the insurance company. You can “withdraw” up to the amount you have saved. Just like any other loan, you are charged interest as well. Be aware that the money you are “withdrawing” will be deducted from your death benefit, if you do not reimburse the insurance company.
By Tamara C. Jude