Retire with Confidence: Essential Steps in Retirement Planning

The big takeaway from this advice is that you don't want to start off late and miss out on the various tax-favored retirement plans available to you. In order to maximize the benefit, you need to start saving right away. For instance, if you save $1,000 year after year from the age of 25, by the time you reach 65, with a 7% a year average interest you may have accumulated more than $215,000. The government allows you to set aside more than the $1,000 a year, however, so the final amount in your retirement account will be close to or more than a million. And remember, there is one more reason to start saving early. Advancements in medicine and technology are keeping people alive and healthy past their 80s and 90s, so the need for fund is crucial around that age. That being said, there are many retirement financial planning instruments that you can utilize, such as 401Ks, IRAs, Medicare planning for retirement. and HSAs, some of which are detailed below.

401Ks

401Ks are retirement plans available to employees of big or small companies. Most companies offer a number of choices including traditional and Roth when it comes to 401K. For the year 2019, the maximum amount of money that an employee under the age of 50 can contribute to this account is $19,000 and if you are over 50, the amount is $25,000. Both types of retirement plans have unique benefits and drawbacks but both offer tax benefits short or long term. However, the biggest benefit of a 401K plan is that many employers match a portion of the employee's contributed amount. This means more dollars going towards saving for the retirement.

IRAs

Unlike 401Ks which are the investment instruments provided by employers, IRAs are set up by the employee with the help of a mutual fund company, bank or broker. The maximum amount allowed to contribute to an IRA account is $5,500 plus an additional $5,500 in your spouse or partner's name. Just like 401Ks, there are various types of IRAs and each one of them has unique features as well. To be able to deduct taxes, however, you may need to meet certain qualification criteria mentioned by the IRS, such as income limit and age.

Retirement Account For Financing

As it is, the retirement planning instruments mentioned above have a major downside when it comes to withdrawing money from the account. Once you deposit money into these accounts, you will have to wait until age 59 years and 6 months to withdraw any amount from it without paying penalty. If you try to withdraw before this time, you will be hit with the interest on the amount plus a 10 percent penalty. The rules are stricter with some retirement accounts. Nevertheless, your retirement account can be a safe place to borrow money compared to many banks and financial institutions that impose hefty interest rate. In other words, you will be allowed to borrow fund from your retirement account at a rate significantly lower than those offered by banks and credit unions. Again, the terms and conditions for borrowing will vary from one type of retirement account to another.

HSAs

HSA is a health savings account which is tax-advantaged and where your money can grow. It can be used to pay your medical bills and related expenses tax-free. When you turn 65, you can use this account just like a traditional IRA which means you can withdraw fund as you like by paying the tax but without the fear of penalty. In essence, HSA comes handy to cover your medical bills and premiums when you have retired.

Self-Employment And Retirement

For people who are self-employed, own their business or freelance, there are plenty of options to save for retirement as well. With 401K, business owners who are also the employees of their business can contribute more to their retirement savings plan. The rules are fairly complex, so talk to your accountant or read retirement planning guide resources before funding the account.