My Students’ Blog

Retirement: The Part of Life No One Plans

By Matt Cooper

Planning for retirement can be a daunting task for those who attempt to do it. For others, the thought never even crosses their mind, and they get to retirement age with no money for retirement. Those who have no plan for retirement will likely not have the financial stability to retire. Let me set the unfortunate scene for you: 

You’re in your mid to late sixties. The past five years have been rough, and you have been struggling with physical issues that have left you in and out of work, running out of sick days, and struggling to make ends meet. You are realizing that your savings are not going to take you far. Looking at retirement, you do not qualify for medical retirement, and it is clear that you do not have the money set aside for retirement. As a young adult coming into the workforce, retirement was not even on your radar, but now you are facing the consequences of your ignorance.

I have seen this happen in my life, and even without specifics it is easy to see how real this is. Having a front row seat to this has inspired me to look into retirement and what to do along the way for a life of ease after your working years are over. It is important to know what retirement plan is smart for you, and ways to save money along the way. Talking to local business owner CJ Cooper, I was given an overview of retirement plans that he is familiar with including what he uses, and the retirement services that he provides his employees. Sorting through the knowledge gained in the interview, I put the pertinent information in this short blog post.

Traditional Retirement Plans

Oftentimes, long term employers offer retirement plans to their employees. It is important to know if your employer offers a retirement plan. If they do, ask if it is available right away or if you have to be with the company for a set amount of time. 

A few things to ask the employer during an interview or early on in the job would be

• “Do you have a retirement program available for employees?”, 
• “If so, when will it be available to me?”, 
• “Do you match employee contributions?”
• “Do you have an automatic enrollment plan?”

With most common retirement plans, each individual contributes money out of their salary to their own retirement. It generally goes to an investor, who takes your money and puts it into the stock market by buying shares of companies on the up and up. Your share can exponentially increase in value as the company grows, but can also dramatically fall if the company takes a dive. When understanding the way that your money will grow, it is important to understand compound interest, as well as the rule of 72. For more information on those, click here. 

The three most common retirement plans include:

• Traditional IRA 

An Individual Retirement Account, you can contribute funds up to a certain amount set by the US government that changes year to year. Probably one of the most common retirement plans, the important thing to remember about an IRA is that taxes are paid on this money when it comes out of the account.

• Roth IRA

A Roth IRA is very similar to an IRA, however in a Roth IRA taxes are paid on your income when the money goes into the account. This is a smart decision if you foresee your retirement growing a lot, or if you project yourself to be in a high tax bracket, because then you will be tax free when you dip into your fortune down the line. 

• 401K

401K is another great option for investment. One thing that is good about 401K’s is the much higher contribution cap. This means that you can put a lot more money into your retirement. However, tax protection is not as good as an IRA, and investment options are more limited.

You don’t want to be the person who lives paycheck to paycheck…

For more in depth information, as well as a look at several other plans, click here 

Another option for investing is trading your own stocks. While it takes more time, you have much better understanding and control of where your money is, and you are able to avoid investor fees. If you want to take this route, this website has a great breakdown of how to invest your own money. Invest Now 

Smart Spending:

A second way to set yourself up for retirement is smart spending. While I’m not saying you shouldn’t live a little and buy things that will make your life easier or more enjoyable, people tend to get ahead of themselves when it comes to spending. 

You don’t want to be the person who lives paycheck to paycheck, which is easy to do, even if you make a good wage. When thinking about making a large purchase, financing isn’t always the best option. While it does allow you to get something way out of your price range, you are relying on theoretical money rather than money you have. Financing can also have major effects on your credit, and you can end up spending way more in interest than if you bought it outright. For more information on financing, click here. 

Knowing what a smart purchase is won’t necessarily make you money, but it will help you keep the money that you do have. It is easy to look at your monthly income, and tell yourself that you can finance something. Looking at this from an outside perspective, the majority of purchases, such as vehicles, are not money makers. Instead, they take away from the income that you could be investing or setting aside for a bigger, smarter purchase. 

Don’t set yourself up for failure. It is never too early to think about your retirement. Any plan is better than no plan, so start planning today.