How To Save for Retirement
How To Save for Retirement
Depending on how long you’ve been in the workforce, your retirement might feel like it’s a long ways off. However, it’s never too early to start planning and saving for retirement. Although it’s easy to let more urgent financial needs take priority, make sure you’re able to set aside some of your earnings to prepare for a bright and relaxing future.
For your retirement, you should assume that you will need 80% of your current annual income for each year that you’re retired, and that you will be retired for about 30 years. To estimate how much of your current salary you should be saving, use Southland’s retirement savings goal calculator here.
Once you have calculated how much you should be saving for retirement, open one or multiple retirement accounts.
Common types of retirement accounts
Employer-sponsored accounts are accounts offered by your employer that you can pay into on a regular basis. They may be fully or partially funded by your employer.
- 401(k): This is an employer-sponsored account where you may save pre-tax income directly from your paycheck. Some employers offer a match up to a certain percentage of your contributions.
- SIMPLE IRA plan (Savings Incentive Match Plan for Employees): This is another type of pre-tax savings account. The maximum amount you can contribute annually for a SIMPLE IRA is generally lower than that of a 401(k).
- Pension: A retirement plan in which your employer contributes money while you work so that you will receive a determined monthly payment while in retirement. Typically, the benefit is based on a combination of your salary, years of service and age.
Government, nonprofit & military plans are available to employees or former employees of a tax-exempt employer, a local, state, or federal government agency, a branch of the U.S. military, or a Native American (indigenous) tribal government.
- 403(b): This is an employer-sponsored account for employees of state, county, local governments and not-for-profit organizations in which you can save pre-tax income directly from your paycheck. Some employers offer to match up to a certain percentage of your contributions.
- TSP: a Thrift Savings Plan (TSP) is a retirement plan offered to federal government employees and members of the U.S. military. The TSP was established by Congress in the Federal Employees’ Retirement System Act of 1986 and offers the same types of savings and tax benefits that many private corporations offer their employees under 401(k) plans.
Self-employed plans allow for business owners and individuals who work for themselves to take advantage of retirement plans that can set aside pre-tax income for their future.
- SEP-IRA: An individual retirement account for self-employed business owners, contractors, or freelancers. The owner of the account will contribute income to an account for themselves and their employees, if any.
- Solo 401(k): A type of retirement account for business owners with no employees besides their spouse.
Individual plans are independently selected by a person and are not connected to an employer.
- Traditional IRA: an individual retirement account in which your contributions may be tax-deductible.
- Roth IRA: An individual retirement account to which you contribute after-tax income.
- Certificate Account: this may also be a good way to set aside savings and earn dividends for retirement.
Even if you didn’t start saving for retirement right when you entered the workforce, it’s never too late to set aside savings and plan for your future! Southland can help you with Savings Accounts, Certificate Accounts, and IRAs. For more information, visit Southland’s Retirement Accounts page.