News & Updates

May 24, 2013 — by: Tessa Montgomery

Dscn3252As a young professional, planning for retirement is often times an afterthought. Putting away for anything can be a hard task to pull off, especially when the benefit won’t be realized for 30+ years. I suffer from the adult version of “it’ll never happen to me.” In high school, it’s more of the feeling of invincibility; whether it’s driving too fast or other acts of risky behavior where I never considered that I would be put in a compromising situation. As I’ve grown up and had children of my own, I now realize this naivety but a similar scenario is happening in my adult life. Why start saving for retirement now? I have plenty of time, right? Wrong.

The value of social security benefits at retirement is a challenging issue. Our generation, and generations to follow, is faced with planning for retirement on our own and not relying on social security benefits as a source of income as our baby boomer parents can. One very easy and effective approach to saving for retirement is through a 401(k). I am lucky enough to have an employer that offers a plan and matches my contribution. I determine how much I want to contribute, they match that amount and it automatically comes out of my paycheck so I’m not consciously putting money aside, which makes the accumulation process painless.

For those of you without the 401(k) as an option (whether self-employed or such benefits aren’t offered through your employer), there is still a way for you to plan for retirement.  An easy way of doing so is through an Individual Retirement Account (IRA). The IRA allows the taxpayer to contribute $5,500 per year ($6,500 if age 50 or over).

To put things in perspective, let’s use my stats for an example. I am 30 years old and want to retire at age 67.  If I contributed $5,500 annually for the next 37 years (assuming a 5% annual rate of return) into a retirement plan, I will have saved $586,903.  If I waited until I was 50 years old to begin saving, I would only have $149,228 at age 67.  By starting now, I will have over $435,000 more than if I waited another 20 years to plan for retirement.  As you can see, it may seem like a large amount to put away, but the best way to prepare for such a large figure is to initiate your retirement plan and start contributing today. Savings alone isn’t enough…you have to save strategically and you have to start saving now.

For more information, or to make a tax planning appointment, please call our office at (530) 926-3881.

 

Tessa Montgomery, Staff Accountant

 Tessa Montgomery, Staff Accountant

 

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