7 Keys to Painless Retirement PlanningSubmitted by Parkworth Capital Management on February 29th, 2016
- Does your employer offer a retirement plan? If so, know the details.
- Know what kind of plan it is- 401k, 403b, etc.
- When can you begin to contribute?
- What type of investment options does it offer?
- Take full advantage of the company’s match.
- When will you be vested?
- The responsibility of saving for retirement has shifted dramatically.
Traditional defined benefit plans are very rare these days, but what exactly does that mean?It means that millennials are among the generations who will fund their retirement purely on what has grown in a 401k, IRA or similar plans that they have contributed to.Contributing even small amounts, consistently, at an early age will allow you to take the greatest advantage of compound interest on your investments.
- Free Money?
Take full advantage of your company’s 401k match if they offer it.
- When will the money be all yours?
Companies usually follow vesting schedules that allow you to determine when you take full ownership of your employer’s contributions.Do not confuse this with your personal contributions since you are immediately entitled to them.Dollars that have not yet vested will be given back to the employer if you terminate employment before you reach full vesting.
- When you get a raise increase your deferral percentage.
The millennials who are disciplined enough to follow this method of increasing savings toward retirement can really increase their retirement balances over time.
- Open an IRA.
If you have maxed out your 401k or if your employer doesn’t offer a retirement plan, consider opening and contributing to an IRA.This can be done in under 20 minutes.Contribution limits are set at $5,500 for 2016, in most cases.There is often a wider range of investment options available in an IRA account compared to other retirement accounts.ROTH options are available and are often attractive features for millennials who are early in their careers.
- Don’t crack the egg!
Your retirement accounts are sometimes referred to as “nest eggs” but no matter what you call them, try to avoid dipping into them prematurely at all costs.Millennials who create an emergency fund with three to six months of their monthly household expenses have created one of the most powerful tools in keeping them from dipping into their retirement savings. Before taking money out of your retirement account you should, at a minimum review your summary plan description and consult with a financial/tax professional.
If you are a millennial who may be beginning a career or just want to make sure you are on the right path to retirement, reflecting on these 7 topics and taking action can put you well on your way to your ideal future.