Retirement 101

Retirement can seem lifetimes away for those of us in our 20s and 30s. However, retirement savings are a vital component of financial health and absolutely essential for long-term financial security. If you haven’t started saving for retirement, start today!

Disclaimer: retirement funds should never, I repeat, never be withdrawn before retirement. You will pay severe tax penalties for early withdrawal. I will devote another blog post to the topic of rainy day slush funds which fundamentally differ from retirement savings in that you can access them as needed for last minute and planned purchases.

Physical health is pretty darn similar to financial health — lots of small consistent good decisions add up to a strong foundation which can withstand economic downturns, unemployment, kids, going back to school, early retirement, world travel, etc.

If you have an employer match, please do yourself a favor and ensure you’re earning every cent of the match. That’s free money, y’all! Then, if possible, invest more! Aim to put 15% of your gross earnings into retirement savings. Don’t forget that some retirement savings are tax deductible so you can reduce your taxable income while still getting paid! And do keep in mind the more you save (regardless of whether it has been taxed), the more interest you earn.

If you’re self-employed, this is another one of those things you have to provide for yourself like health insurance, paid time off, etc. If you plan to retire someday, saving cannot wait; we all need to start today. No amount is too small.

For a comprehensive rundown on types of retirement accounts (401(k), 403(b), SEP IRA, Roth IRA, Traditional IRA, etc), NerdWallet is a great resource.

If you have several retirement accounts, roll over in one consolidated Individual Retirement Account (IRA). I recommend opening an IRA with my favorite bank and brokerage firm, Charles Schwab. They don’t pay me to endorse them but perhaps they should since I rave nonstop about their exceptional customer service and fee free ATM withdrawals (worldwide!) Schwab, call me! A new player in the financial game that I’ve been watching with keen interest is Ellevest. They are a wealth management firm for women, by women, with the stated mission of closing gender money gaps (huzzah). I can’t personally vouch for their services but #womensupportingwomen is my jam. Regardless of where you park your retirement, the bottom line is this — the longer your money is in the market working for you, the better!

Here is a graph depicting the value of starting saving for retirement asap. There is no shame if you haven’t started yet. But don’t let it wait another day.

compound interest

Source: Business Insider/Andy Kiersz

This week, while visiting family in Florida, I took my own advice and walked into a physical Schwab branch (!) and rolled over three retirement accounts from past jobs into one consolidated IRA. There are a number of great reasons to consolidate accounts including minimizing monthly fees (gross!), earning compound interest on one large pot of money (rather than several smaller amounts), and (my personal favorite) — less login info to track!

If you have any retirement questions, message me.

And, since I’ve been going on about earning interest, I cannot possibly move on without acknowledging that many of us are paying interest on existing loans. Low-interest debt is an attractive method to finance large expenses like home, auto and college. However, you well know, debt can quickly spiral out of control. While it sometimes makes sense to take your time in paying off low-interest term loans, let’s pay off those high-interest loans ASAP. When you’re paying less interest, you’ll have even more to squirrel away for your future!

 

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