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What should you be doing to fund your retirement? The short answer is: whatever you can! It’s never too early, or too late, to start a retirement savings program. The main thing is to get started, even with a small amount, and keep saving on a regular basis.
The benefits of starting early
While young people in their 20s or early 30s may think retirement is a long way off, starting a retirement-saving habit early makes a huge difference in what you can save. The table below shows how the magic of compounding (earning interest on your interest) multiplies the amount you save over time.
Jane begins putting $4,000 in an IRA every year from age 25. Joe begins putting $4,000 in an IRA every year from age 40. Look at the difference those 15 years make at retirement!*
|Yearly IRA savings||$4,000||$4,000|
|Available at age 65||$380,102||$166,584|
*Assumes both individuals save $4,000 per year in an IRA averaging 4% return until age 65.
Ways to save
People with a retirement savings plan at work, such as a 401(k) plan, should take full advantage of it—especially if their employer offers matching contributions. Plans generally allow you to contribute money pretax, meaning you save for retirement but also save on your tax bill now. But consider also opening an Individual Retirement Account (IRA), because even those with a plan at work can supplement their savings with an IRA. When opened at Millbury Savings Bank, money saved in an IRA is insured by the FDIC and DIF. If you already have an IRA or a retirement account from a former job, you can roll it over into a new IRA and keep all your retirement savings together for easier tracking. Make sure you consult with a trusted professional to avoid any fees or tax consequences.
Traditional or Roth?
Two types of IRAs exist: Traditional and Roth. In general, contributions to a Traditional IRA can be tax-deductible, helping reduce your tax bill today (consult your tax advisor to make sure you qualify), but earnings grow tax-deferred, meaning that you aren’t taxed on them until you withdraw them. On the other hand, Roth IRA contributions are taxed now but earnings may be withdrawn after age 59½ tax-free, provided the account has been open for at least five years. With either type, individuals must have earned income in order to contribute, but the Roth has additional income limits for eligibility. Other differences exist between these two types of IRAs; let one of our customer service representatives explain them and help you make the right choice.
Saving for retirement isn’t difficult ... but retirement without savings is very difficult. Stop by Millbury Savings Bank today to start your retirement savings resolution!