Where can your money be saved?

The best time to start saving for retirement and getting a retirement plan together is as soon you can.  Ideally, you want to start saving in your 20’s.  This would be when you first leave school and begin earning paychecks.  The sooner you start saving the more time your money has to grow.  Each year your gains can generate their own gains or profits the very next year. This is known as compounding. How much should you be putting into savings?  Most people agree that with today’s changing economy, the ideal amount should be “as much as you can.”  Many experts and financial planners are recommending that you save 10-15% of your income for retirement starting in your 20’s.  The general rule is to save at least 15-20 dollars in savings to cover each dollar of the annual shortfall between your income and expenses.  For example this would mean that if your projected retirement expenses exceed social security and pensions by 30,000 a year, you might need to build a nest egg of 450,000 to 600,000 to bridge the gap

The best places to save your money are tax-favored retirement accounts such as IRAs or 401(k)s.  The plans offer different features, but most of them allow you to defer taxes on the money saved and the returns you earn within the account.  “Tax deferral” is simply the amount contributed escapes usual income taxes until you start withdrawing the money years later.  This allows more of your money to earn investment returns over time. There are other advantages to individual retirement accounts as well, such as the 401(k) plan. Many employers will match part of their workers’ contributions to employer-sponsored retirement plans.