Why should I worry about saving for retirement right now? Are IRAs really that important? If you are wondering the importance of saving for retirement and how much that can drastically affect your future, you’ll want to continue reading. We wanted to provide a beginner’s guide to IRAs so you can understand your options and the differences between IRAs.  

What is an IRA?  

An individual retirement account (IRA) is basically a savings account with tax advantages for you to use to prepare for retirement. There are several different types of IRAs, including Traditional IRAs, Roth IRAs, SEP IRAs and SIMPLE IRAs.  

What are different IRA options?  

A Roth IRA or Traditional IRA are two options. These will be explained in the next section. Other options may be a SEP IRA which stands for simplified employee pension. A nondeductible IRA may be an option if you (or your spouse) have a retirement plan at work and your income exceeds the IRA income limits, then you may not be able to deduct your traditional IRA contributions. A SIMPLE IRA stands for Savings Incentive Match Plan for Employees – it mainly exists for small companies and the self-employed. There are others out there, but these are the most common you would come across based on your employment.  

What is the difference between a Roth and Traditional IRA?  

For starters, with a Roth IRA, you contribute after-tax dollars, your money grows tax-free, and you can generally make tax- and penalty-free withdrawals after age 59½. With a Traditional IRA, you contribute pre- or after-tax dollars, your money grows tax-deferred, and withdrawals are taxed as current income after age 59½. Investopedia states, “Roth IRAs are similar to traditional IRAs, with the biggest distinction between the two being how they’re taxed. Roth IRAs are funded with after-tax dollars; this means that the contributions are not tax-deductible. But once you start withdrawing funds, the money is tax free. Conversely, traditional IRA deposits are generally made with pretax dollars; you usually get a tax deduction on your contribution and pay income tax when you withdraw the money from the account during retirement.” To learn more, click here: https://www.irs.gov/retirement-plans/traditional-and-roth-iras   

How much should I be saving for retirement?  

There are lots of different ways to be sure you are saving enough for retirement. When you retire, you’ll need to factor in monthly bills, living expenses, rent, loans, medical bills, travel and so on – so it does add up quickly! One way to be sure you are saving enough is to look at your age. In your twenties, one rule of thumb is to save 10% to 15% of your pay for retirement. By thirty, you’ll want it to be at least 15%. At 40, you should aim to save 3 times your salary. Consulting a financial advisor will also be helpful, so you can determine how much to save and also how much to contribute to other areas such as a savings account or 401k.  

We hope this helps you feel more confident about beginning to save for retirement with an IRA. We offer solutions for you along with any other help you may need financially. Reach out to us today! 

Peoples Bank & Trust Co. 

Member FDIC 

Equal Housing Lender  

Whether you’ve barely thought about retirement or are nearing the typical retirement age and want to know how to go through the transition properly, learning about the process is always a good idea. Learn from the mistakes of others and avoid these common mistakes: 

Putting Off Retirement Savings 

Don’t keep putting it off – the time to start saving for retirement is now. The earlier you start, the less stressed the retirement process will be. A CD or IRA is a good place to start!

Not Having a Plan 

There are so many things that factor into how much money you’ll need to save, including when and where you’re retiring. Plan these things out in advance, coming up with an amount you’ll need to retire comfortably, then take action steps towards saving that much. 

Not Taking Advantage of Your Company’s 401(k) Employer Match 

If your employer offers a 401(k), make sure you maximize the amount you contribute and utilize the employer match if that’s an option. This is extremely important and the money matched can really add up. 

Waiting to Pay Off Debt 

Don’t wait until the last minute to pay off your debt – get rid of that as soon as you can so you don’t have to save for retirement at the same time as you’re paying off your student loans. Experts often say you should focus on paying off debt before you worry about saving for anything, including a new vehicle, a house and even retirement. 

Looking Past Potential Health Costs 

You never know what the future holds, and you may end up in a situation where you must pay for unexpected medical bills. While we hope this isn’t the case, it’s always better to be safe than sorry when planning for retirement. 

Changing Jobs Frequently 

There are benefits to sticking around at a certain company for an extended period. For some companies, when you’re there for a set period (usually five years), you become fully vested which means ownership of the funds or stock that your employer “matches.” Consider this as you navigate the job world and consider hopping around from one to another. 

While this is just the tip of the retirement iceberg, these are all common mistakes that can be easily avoided. Make sure you are planning for retirement ahead of time so you can save yourself the trouble that comes with going into the process blind! 

Peoples Bank & Trust Co.

Member FDIC

Equal Housing Lender

It may seem like a lifetime away, but retirement has a way of sneaking up on all of us. Something to remember when it comes to retirement is that the earlier you start saving, the better. Plus, you’re never too young to invest in your future. If you’re in your 20s, here are some helpful strategies you can implement to set yourself up for a successful retirement. 

Rid Yourself of Debt 

The first step in creating a retirement fund is to look at what you’re dealing with in terms of debt. If you can realistically pay off your student loan debt in less than 10 years, financial advisors often recommend that you focus on that before worrying as much about saving. 

401(k) Plans 

Investing money into an account specifically for retirement allows you to store up without paying taxes on gains until you reach retirement. If your employer offers a 401(k) plan, that’s a great place to start. 

Open an IRA 

On the same note, an IRA is a retirement account that has lower contribution limits than 401(k)s. This doesn’t have to go through your employer, either, so the amount you invest is more in your hands. If your company doesn’t provide a 401(k) match, the smartest route would be to max out on your IRA then put the remaining money into your 401(k). 

Create an Emergency Fund 

You may have a good amount of money stored in your savings account, but how much of that can be used in cases of emergency? Keep your life savings and your emergency fund accounts separate so you have a cushion if things go wrong. This will prevent you from needing to withdrawal from your retirement account or main savings account. Try to save three to six months worth of living expenses to be safe. 

Automate Your Savings 

If you have a hard time staying disciplined and remembering to contribute to your savings account each month, there’s a way to help with that. By making your savings automatic, you won’t even have to think about it since it will transfer for you. Set a savings goal for the year, figure out how much you’d need to save each month in order to make that happen and go from there! 

Keep an Eye on Your Account 

If you’re making saving for retirement a priority in your 20s, you’re in a good place already. Check back on your account frequently to see your savings grow and that will continue to motivate you throughout your 30s, 40s and beyond.  

Questions about retirement or unsure where to start? Our team is here to help! Contact Peoples Bank & Trust with any questions. 

Peoples Bank & Trust Co.

Member FDIC

Equal Housing Lender

Even though it may seem far off into the future, it is never too early to start saving for retirement. If you have an idea of what you want your retirement to look like, it makes it much easier to plan for it and set goals in order to reach that vision. Here are some tips on how you can look ahead toward retirement savings.

Set Your Goals

After all your years of hard work, you’re looking forward to some rest and relaxation—but how will you finance it after you retire? Are you looking forward to traveling the world or just don’t want to worry about finances while you’re hitting the links? Envisioning what you want your lifestyle to look like and when you want to retire will help you determine how much you should put away for retirement.

Find Out How Much Money You Need

Use a retirement planner tool to determine how much income you may need in retirement. You’ll need to enter in your current annual income, how often you’re paid, pre-tax contribution to your retirement account, current retirement savings, estimated Social Security benefit, current age and desired retirement age. You can also adjust your contribution to see how the numbers change.

Save and Invest

Most experts say 10-15% of your income should go toward retirement. If you aren’t comfortable doing that right now, save what you can and increase it 1% every year until you can reach that goal. There are a variety of retirement plans you can enroll in; we’ve listed some of the most common options below.

• Company sponsored plans such as 401(k), 403(b)
• Individual Retirement Accounts (IRAs)
• Roth IRA
• Various investments such as mutual funds, stocks, bonds

Make Up the Difference

If there is a difference in what you’re saving now and what you may need for the future, there are many options for you to make up the difference.

• Increase your deferral into your 401(k) retirement plan. Figure out how much it costs per week to increase the deferral by 1%. Then, continue to bump that number up as needed. A great time to do this is when you get a promotion or raise.
• Make annual contributions to an IRA. This is similar to a 401(k) as it allows you to invest for the long-term and pay taxes on earnings later.
• Contribute to your 401(k) to catch up to where you need to be.
• Manage your debt now so you can have more money later, as long-term savings are crucial for your retirement!
• Boost your savings by delaying retirement. By waiting just an extra year or two, you could help increase your savings and increase your overall retirement budget.
• Work for a significant promotion or raise and save some of the additional earnings.

Review Your 401(k) or Roth IRA Yearly

Once or twice a year, set aside time to review your 401(k) or Roth IRA. Firstly, review your asset allocation—your retirement accounts should match your goals. Check your progress to see if you’re saving more than anticipated or if you’re not quite there yet and need to make some changes. If you’re not saving as much as you wanted, consider increasing your deferral, adding more money to your IRA or making an extra contribution to catch up to where you want to be. Also, update the beneficiaries on your accounts and make sure your contact information is current.

Peoples Bank & Trust Co.

Member FDIC

Equal Housing Lender