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Planning for retirement is a comprehensive process that allows you to make the most out of your earnings, enabling you to put money aside for the later years of your life. Preparing for life after you stop working is not always as simple. You need to think about the lifestyle you hope to lead, daily expenses, travel you hope to do, medical needs, and much more. At any age, it's best to work with a retirement planning advisor to streamline the planning process.
It is never too early to start retirement planning. The sooner you do, the more time there is for your investments to grow in value. If you start early, in your 20s, your money will have the best opportunity to grow to reach your financial goals. However, if you have not invested yet and you're older, it's still possible to create a plan.
The first step is to determine how much you need to retire. Financial planning for retirement entails considering what your goals are for your retirement years. Some things to consider include:
Once you determine how much money you may need year-to-year in retirement to live the lifestyle you desire, you can begin working on a plan to get to that point. Your retirement planning advisor will help you throughout this process.
Your retirement planning financial advisor will work with you to compare several types of retirement strategies to determine which fits your goals, risk tolerance, and income now. Keep in mind many of these plans have tax advantages. Your advisor will guide you on retirement tax planning benefits along the way, too. Here is a look at some of the most common retirement plans available today.
Planning for retirement through employer-sponsored plans means you'll tap into the program your employer offers. Some employers match the contributions you make to your retirement plan. Many of these plans allow you to choose how much you wish to contribute from your annual income. Then, your employer may match that amount or some amount up to that value.
Many employers offer a 401(k) plan. This type of workplace retirement plan allows you to contribute a portion of your income throughout your working career. These are tax-advantaged plans. That means you'll add pre-taxed earnings to your retirement account. Later, when you begin to withdraw these funds for use during retirement, you'll be taxed on them. Most people have a lower tax rate during retirement than they do while working.
There are several types of IRAs or individual retirement accounts. You do not need an employer to set these up or manage them. Instead, you can get help from a retirement planning advisor on how to establish an IRA. This can be done at a financial institution such as a brokerage or a bank.
Though there are numerous types of IRAs, the two main types are a traditional IRA or a Roth IRA. Depending on which one you choose and your eligibility, you may qualify for a tax break using these accounts for retirement planning.
Once you put money into your retirement account, it's meant to remain there until you reach full retirement age. If you withdraw it too soon, you may have to pay fines for doing so on top of the taxes that may apply. Yet, you can move money from one retirement account to another. To do that, you'll process a 401(k) or IRA rollover. It simply allows the money to move from one retirement account to another without putting you at risk for fines and penalties.
Planning for retirement isn't a simple process because there are so many options. That is why it is so critical to work with a retirement planning financial advisor to create a plan that works for your needs. Contact our team at Gersch Wealth Strategies in Giddings, Texas, for help with every aspect of retirement planning.