|When Should You Start A Retirement Plan?|
When you are young and fit, life seems so cheery and happy. You see everything with rose tinted glasses and the excitement and exuberance of life is what makes everything so special. It is said that youth is the elixir of life and people who are youthful seem not to have a care in the world. They have special skills that they have acquired and mostly concentrate on their job, love-life, family and also kids. A lot of time and effort is spent by the youth on setting up a career and gaining success either in the corporate world in a job or as a business man. Life and time fly by at breakneck speed in the hurly burly of modern living with all its cares, worries, stresses as well as successes, hopes and joys of sheer living.
If you were to ask a young man or woman (below the age of 30 mostly) about their plans and preparations for retirement, most would look you up and down in a sense of disbelief, as if it's the most inappropriate and perhaps insensitive question to ask. After all, when one is young, hardly any one spares a thought for retirement. Retirement seems so far away, a distant destination and one may ask, "I am young now. Let me enjoy life! Why should I bother about retirement when it's years and years away?" Obviously, this is quite understandable as retirement planning is considered by many as apt for those who are nearing retirement.
However, whatever a young person may say, financial planning experts say and even reiterate that the best time to start planning for retirement is when one is young, zestful and enthusiastic. This is because once you grow older, you will not have the energy or even the resources to keep something by for the golden years. Everyone dreams of having a beautiful post retirement life, spending quite, restful time with family and friends, watching the sunset years in calmness and perhaps in spiritual pursuits. But if you want to maintain a reasonable standard of living after retirement, it is necessary to start planning and saving up for it from when you are young.
The compounding power of money saved by way of compound interest is a very powerful principle. If you have age on your side, even a small amount of money kept away or saved in a retirement plan will attract compound interest and grow at a compounded rate year on year. This way, it will grow into a tidy sum, a veritable nest egg for your retirement years. If you wait to plan for retirement till you are above 45-50 years of age, you will find that you have lost the advantage of this power of compounding and you will indeed have to save huge amounts all at once to have a tidy sum. This may become difficult as it all depends on you earning capacity at that advances age, also when you have huge competing responsibilities like children's education, mortgage payments, payments on car loans or even health expenses, if God forbid, you are unwell.
Given the above, it's best to start early and plan long and well for your retirement when you are still young and hale and hearty.
IRA Retirement Plans:
An IRA is essentially a “no fuss, no muss” situation.
The IRA-based plans range from one with little employer involvement to ones that the employer establishes and funds.
Individual Retirement Accounts An IRA is the most basic sort of retirement arrangement. People tend to think of an IRA as something that just individuals do (hence the “I” in IRA). But an employer can help its employees to set up and fund their IRAs. With an IRA, what the employee gets at retirement depends on the funding of their IRA and the earnings (or income) on those funds.
An online version of the IRA Resource Guide for Small Business Owners and Individuals CD-ROM is available. This narrative (with updates) contains information on IRAs and retirement plans funded with IRAs. A copy of the CD-ROM is available for order.
There are four types of IRA-based plans:
Payroll Deduction IRA Under a Payroll Deduction IRA, an employee establishes an IRA (either a Traditional IRA or a Roth IRA) with a financial institution. The employee then authorizes a payroll deduction for the IRA with the remainder of the employee’s pay distributed to the employee as before.
Traditional IRA - A traditional IRA is a personal savings plan that gives you tax advantages for saving for retirement. Contributions to a traditional IRA may be tax deductible - either in whole or in part. Also, the earnings on the amounts in your IRA are not taxed until they are distributed. The portion of the contributions that was tax deductible also does not get taxed until distributed. A traditional IRA can be established at many different financial institutions, including banks, insurance companies and brokerage firms.
Roth IRA - A Roth IRA is also a personal savings plan but operates somewhat in reverse compared to a traditional IRA. For instance, contributions to a Roth IRA are not tax deductible while contributions to a traditional IRA may be deductible. However, while distributions (including earnings) from a traditional IRA may be included in income, the distributions (including earnings) from a Roth IRA are not included in income. For both IRA types - traditional and Roth - earnings that remain in the account are not taxed. A Roth IRA can be established at the same types of financial institutions as a traditional IRA.
SARSEP A SARSEP - the Salary Reduction Simplified Employee Pension Plan - is a SEP set up before 1997 that includes a salary reduction arrangement. Because this is a simplified plan, the administrative costs should be lower than for other more complex plans. Instead of establishing a separate retirement plan, in a SARSEP, employers make contributions to their own Individual Retirement Account (IRA) and the IRAs of their employees, subject to certain percentages-of-pay and dollar limits.
SEP A SEP is a Simplified Employee Pension plan. A SEP provides employers a simplified method to make contributions toward their employees’ retirement and their own retirement. Contributions are made directly to an IRA set up for each employee (a SEP-IRA).
SIMPLE IRA Plan A SIMPLE IRA plan is a Savings Incentive Match Plan for Employees. It gives small employers a simplified method to make contributions toward their employees’ retirement and their own retirement. Under a SIMPLE IRA plan, employees may choose to make salary reduction contributions and the employer makes matching or nonelective contributions. All contributions are made directly to an IRA set up for each employee (a SIMPLE-IRA).