Everything you need to know about retirement, reloaded

Everything you need to know about retirement, reloaded

It's never too early to start planning your retirement! If you still aren't sure how to do it, take a look at this reloaded guide!

Planning your retirement can take some time. You will need to know your options, learn how to calculate it, and start preparing for it. Take a look at this guide and learn more about your retirement plan options!

Main differences between the 401(K) and IRA accounts

When we talk about retirement, there are usually two popular options that come to mind. The first one and the most recognized one is the 401(K). The second one is the Individual Retirement Account or IRA.

These accounts, which are the two most common contribution plans to retirement, have their differences, and it’s important to understand them to choose the right fit for you.  Surprisingly, some people manage to have both of them.

About an IRA account

An Individual Retirement Account, or an IRA, gives anyone, under the age of 70,  the opportunity to contribute to their retirement. It allows an individual to save for retirement with tax-free growth or on a tax-deferred basis.

The 3 main types of IRAs each have different advantages:

About 401(K) accounts

401(K) accounts can be opened through employers only. There’s a qualification requirement that needs to be fulfilled in order to be considered. This plan is a company-sponsored retirement account that employees can contribute to. Employers may also make matching contributions.

Many employers tend to offer matching contributions when you open a 401(K). For example, if your employer would match your account contributions up to seven percent of your income, you should never contribute less than seven percent yourself. If you do contribute less than that, then you would be turning down some free money, which you wouldn’t want to do.

To conclude:

If you take control of your future now and start planning for your retirement, you will be grateful for it later on in life.  Unfortunately, some of us may have to work for some additional years, or even for a lifetime period, but we all would like to be able to retire someday. That’s why it’s very important that you start thinking about your retirement plans as early on in your life as you can.

Learn how to calculate your retirement savings

The first thing to look at is your current savings. You could've earned them through work or investment, it doesn't matter the source. What's important is that you know how much you already have and you avoid spending this amount earlier than planned. If you haven't started to save money for your retirement, don't worry! You still have time.

Next, you need to calculate your future earnings that'll go to this fund. Look at your annual contributions to retirement savings and multiply that amount by the number of years left until you retire. This will give you a number, which is the approximate amount of money you'll have after that many years.

When considering your annual contributions to retirement savings you can include what you personally put aside for this. Additionally, you can take into account your 401(k) contributions and other investments.

Once you made these calculations, add all amounts to other guaranteed sources of income. This will give you the total amount of money that you'll have when you retire. You can divide this by the approximate number of years you think you'll live after your retirement in order to see how much money you'll have to spend each year.

If you also calculate your future expenses, you'll be able to check if you'll have enough money to cover them. This can be a scary step, but the sooner you know if you'll be well, financially, after you retire, the better. If you find that you could use some more money, you'll have time to save some extra bucks.

In order to estimate whether you’ll be able to cover your expenses after your retirement, you can make similar calculations for your current living expenses and use the results to make projections. If what you determine is lower than your future savings, you can stop worrying about it. If not, you may want to learn how to manage your living expenses and save money in them!

Keep in mind that there are certain factors that can't be predicted with total accuracy, such as the growth rate of inflation and your investments. You can do more detailed calculations to better predict these numbers, but they aren't as necessary for a first, more general approach.

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