What If You Get A Late Start With Retirement Planning?

What if you get a late start with retirement planning? A company-matching 401(k) program is a good way to get caught up with saving for retirement if you got a late start. A good place to start is right...

A good place to start is right at your place of work. A lot of companies offer 401(k) or retirement plans where they match your contributions based on the percentage of your income or how large your contribution is. Your biggest impact as you try to get as much money saved as possible is to start putting the money away that is going to be free from taxes at this point, and saving as much as you can in these kinds of retirement plans. Contributions to this plan at work help you because it is going to grow without you having to pay taxes every year, but it should also reduce your gross income for tax purposes. Look at your plan at work first and see if your company matches. Say for example, a company matches 3 percent of your contribution. As long as you don't put in 3 percent, then you've given away free money. You want to make sure that if your company is giving some money to you on a match, that you're at least doing that. Another good way is to start a traditional or Roth IRA, and just begin funding it on a monthly basis. The most important thing I tell people is to establish the discipline. Pay yourself first, then make sure to try and save at least 5 to 10 percent of your annual income and establish an automatic monthly withdrawal that comes directly out of your paycheck.

This is an excellent approach because you are thinking of that investment or that savings as another bill that needs to be paid, and you put your wealth creation on sort of an autopilot. You do not miss the money. It's sort of like a muscle that you need to build and flex. You are putting away 3 percent and then you get to thinking. Have you really missed that 3 percent you have been putting away every month? What if I bump that to five? You will get accustomed to five. And then, what if I up that to seven? Sooner or later, before you know it, you may be putting away 10 to 20 percent of your income and you adjusted your lifestyle accordingly.

Someone who is self-employed can do a few things. With fluctuating cash flow, they can always invest in a traditional Roth IRA every year. It's not mandatory funding, but when you have money to put away, that money is tax deferred and those are great plans as cash flow becomes a little bit more stable and flows a little more easily. They can even set up something called the simplified employee pension plans. They are set up like IRAs, but they allow even more money to be put away. So, someone can start out with a traditional or Roth IRA for the self-employed and as the business starts to grow or they feel their cash flow is little bit more, then they can graduate to more plans that allow them to put much more money away . In addition, there are also some great plans for sole proprietors. Once you have a really steady income, there is even something called Solo 401(k) for those individuals. Unlike a 401(k), which is strictly isolated to big corporations or small or medium sized companies, a Solo 401(k) allows people to setup their own 401(k) to put quite a bit of money away. You can have a lot of flexibility on the retirement plan side when you are a sole proprietor.

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