How are you going to support yourself when you quit the workforce and get no money?
Once you grow old, your kids may not be able to support you as they are going to have their own lives. Thus, you need to have a retirement plan or savings before you leave the workforce.
Before retirement, it is important to consider a few things.
First, how much you need to save and invest in retirement funds.
Second, the age of your retirement and how well you want to live after your retirement.
And third, how are you investing your money and what returns do you expect.
Safe options for Investing:
Stocks: The likelihood of yielding returns is high than bonds and keeping money as cash. It also means investing in mutual funds and not only individual stocks.
Bonds and Real Estate: A lot of people have the option of real estate or bonds, which means a fixed income in terms of rent or coupons will come. The real estate grows in equity, leading to favorable returns.
Cash Savings: This would not be a good option as cash ends up losing value due to inflation
Income options at retirement:
There are different retirement accounts that an individual can opt for to save money:
1. Individual account: This is where you can put a certain amount of money before taxes. IRS has created a retirement account where you can save money on your own pre-tax. This money grows for you tax-free and you can use it as an income when you are at the retirement age of 59.5 years or older. If you use this amount before thementioned age (59.5 years), you will have to pay tax and a 10% penalty.
2. Roth account: Dollars in this account have already been taxed and you won’t have to pay tax on it later. This account can be advantageous for individuals who expect high income after they retire.
3. 457 or 403B account: 457 accounts is offered to state, local public, and some non-profit employees. Whereas, 403B is offered to private, non-profit organizations and government workers.
4. Health savings account: Health is one of the biggest expenses. This is a triple advantage account. It has three advantages:
The contribution you make is tax-freeGrowth is tax-freeIf you use if for medical expenses anytime, it’s tax-free and there is no fee attached
It can be difficult to retire without having a solid financial investment.