Retirement Plans

Retirement doesn’t seem important on your first day of work, but the earlier you start investing for your retirement, the more money you will have to spend when you’re looking to stop working (and the earlier you can stop working).

Investment Basics

  • Investing your money over a very long time (decades) is one of the safest ways to ensure you can retire from working, so invest as much money as you can comfortably afford as early as you can.
  • We cannot give specific investment advice. Investment always involves the risk of losing some or maybe all of your invested assets (don’t believe anybody aboout a sure thing). Even the best investments have periods of loss or slowed growth, but conservative investments often recover from the loss and make up.
  • The general rule is that an investor should demand more money for accepting more risk. Generally, the safest investments give you the lowest returns. There are always exceptions, where people mistakenly assumed an investment was safe, when in reality the investment was very risky.

Please retain an investment advisor to learn more about how to invest for your future.

401K Plans

A 401K plan is a tax protected way to save for your retirement. If your job offers you a 401k plan, you should take advantage of it.

  1. The company will automatically withold some of your paycheck and automatically invest it for you.
  2. All funds added to your 401K are yours to keep, whether you stay at the company or move to a new company.
  3. The funds invested into the 401K will not pay income taxes, but will grow steadily, potentially doubling in value every 10 years.
  4. The company may “match” your contributions to the 401K, meaning when you invest $1, the company will contribute $1 as well.
  5. Your 401K investments will grow tax free until you retire, usually at age 65 or more.
  6. When you retire, you must pay income taxes on withdrawals from your 401K, but you will likely be taxed much less during retirement than when you are working.

The advantages listed above is a great deal for you in the long run. If you start saving small amounts in your 20s, you can easily be a millionaire in by the time you retire.

You should assume that any money you put into a 401K will not be available to you until retirement, except under exceptional need because you can get money out of the 401K, but you will pay a substantial penalty to do so.

401K Matching

Companies may “match” your contributions, meaning that when you contribute $1 to your 401K, the company “matches” you contribution and contributes $1 as well. Most companies have a limit to their generosity, usually by matching only some fixed percentage of your salary.

  1. If a company matches up to 6%, that means they will match your contributions dollar for dollar up to 6% of your salary.
  2. If you contribute 10% of your salary, the company will contribute 6%.
  3. If you contribute 4%, the company will contribute 4%.

Vesting Period

The company offers 401K matching as an incentive to keep you working at this company. So there is a “penalty” if you leave the company. The vesting period means that you don’t actually own the “matched” contributions until the vesting period is over. An eighteen month vesting period would mean that after working at the company 18 months, the matched contributions will start to actually become yours for keeps.

Pensions

Pensions are kind of a rarity these days, but they are basically a different type of retirement plan, usually not requiring contributions by the employee. Pensions are often associated with labor unions, so you will have to ask questions and do more research on your own.

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