Retirement

Graphic: How Much Salary Do You Need to Save for Retirement By Year

The image is a line graph indicating that salary for retirement you will need to reach your ideal retirement savings plan. The image shows Yearly Salary Saved on the y axis, in percentages and years needed on the x axis, in increments of ten.

The years needed axis begins at zero and ends at sixty, therefore it is assumed that the age of retirement for this chart is sixty.

The number of years needed decrease in proportion to the amount of money saved. A person who saves twelve per cent of their annual salary, for example, must save for a total of forty per cent to reach their goal.

A person who saves less, will take fifty years or more to reach their retirement savings goal.

Should you Withdraw From a Roth IRA to Pay Down Debt?

Most of the people who undergo retirement process want to become debt free and considering withdrawal from Roth IRA is the best option for them. But, what they really don’t know is that, withdrawing money from your Roth Ira to pay all of your debt is not a good action to consider. It is because there are lots of reasons why this is not a good option for you.

To help you have more knowledge about this issue, here are some reasons why you don’t need to withdraw your Roth IRA to pay down all your debts.

  • You will pay penalty once you withdraw from your Roth IRA. Even though you are allowed to withdraw in your contributions to Roth IRA, you will still be penalized once you withdraw your earnings unless you have qualified distribution of earnings. To make your earnings qualified, you should reach 59 ½ of age to make you become disable for withdrawal and should be used for buying your first home. Or your earnings should be five tax years or more after your first contributions. But if you are not qualified you will be subject to additional penalty on your tax upon your withdrawal.
  • You will become unprepared during your retirement. Since the Roth IRA is specifically design for helping people to pay their daily living expenses once you decide to stop working, withdrawing your money will increase your odds to impoverish your retirement.
  • You will lessen the interest of your withdrawal from your Roth IRA. Even if you have qualified distribution, you will just get small balance once you withdraw. This will provide you results that you will get less amount of money on your earning interest and lessen your own returns over a period of time. Thus, once you decide to withdraw your contributions, you will never reinvest it again.
  • You will have bad financial pattern. Withdrawing your money from your Roth IRA is easy however, it will provide you bad financial pattern if you take out your cask in early distribution. This will provide you to hit your retirement goals once you decide to tap your retirement contributions just to pay your debt.

In Roth IRA contributions, all the things are provided equally if you will avoid withdrawing your money just to pay down all of your debts. In case you have no more resources to help you pay your debts, you should try other ways and create good plan to ensure that you will have good future and avoid the withdrawal process in early contribution.

But if you really want to opt for this kind of decision, it is highly recommended that you just get your contributions from Roth IRA and not your actual earnings of your retirement. Just allow your earnings to continuously grow for you to prevent paying for penalty taxes from early withdrawal of your contributions most especially if it is under non – qualifying event. Through this way, there is still good future that awaits you.

Work 401K Offers Tradition & Roth Options: How Does it Work and Where Should I Contribute?

If you are not eligible for a Roth IRA but considered as high wage earner, there is an opportunity for you to create your own Roth IRA. You can invest in 401k taxable investment account that can offer you to build your own Roth contributions that will become beneficial for you upon your retirement.

Considering the 401k you should learn its two types so you can choose which option is the best for you. Here are the two plans you can choose from:

  • Roth contributions. In this kind of option, it is good combination of traditional contributions that offers maximum limit on your 401k. Choosing this kind of contribution will allow you to pay your tax but there is no longer a need for you to pay your tax once you have decided to withdraw your contributions.
  • After – tax contributions. This option will provide you higher limit that can reach $53k for your total contributions. If you decide to roll your contribution to your Roth IRA on your retirement, you will achieve similar Roth benefits.
  • Roth 401k. In this option, you will have the opportunity to achieve big amount of money from your Roth IRA as you expect. Thus, if you have employer that has good 401k options, you can roll in your own account of IRA into your 401k that makes it easier for you to roll them back and then out play the backdoor contributions of your Roth in the near future.

So if you are high wage earner, it is best for you to opt with the traditional contributions that only ask for $18k. But if you are expecting to pay higher rates upon your retirement then you can choose the after – tax contributions. However, your decision about which plan is best option for you will still depends to the current situation you have right now.

On the other hand, many people find the after – tax contributions attractive in some other ways. It is because it has IRS regulations that make it enjoyable and at the same time allow all the retiree to segregate effectively after your tax assets from pretax monies once you decide to rollover it into IRA. As you opt for pretax 401k assets, both of your investment earnings and pretax contributions will be rolled in a traditional IRA wherein you can convert it into your Roth IRA.

Meanwhile, for you to ensure that you will get the effective return from your pre-tax  contributions on your current marginal rate and can lessen your average tax rate for your retirement, you should ensure that you are high wage earner. It is because the marginal rates are always higher than the average rates that create sense to build your Roth.

Overall speaking, having high income will allow you to choose traditional 401k that reduces the taxes you pay that seems higher during your retirement. Once you are done with this process you can now proceed with after-tax Roth then reach the 401k and IRA that makes it beneficial in your account.

 

Graphic: How Much Should You Have Saved Up for Retirement Today

The table shown in the image is a savings calculator tool. The table aims to be a guideline to help savers understand how much money they should have saved in preparation for retirement if they have been saving about five percent of their salary.

How Much Should You Have Saved Up for Retirement Today

The table is broken into two categories; on the y axis is the age category, beginning at thirty years and ending at sixty five years, with five years intervals in between; on the x axis is salary, starting at fifty thousand dollars and ending at four hundred thousand dollars.

To use the table a person must first find the number closest to their age on the y axis and then the number which closest approximates their salary on the x axis. At the intersection of these numbers will be another number, which, when multiplied by the salary, will indicate the amount of money a person should have saved.

Graphic: Growth of a Retirement Account From the Age of 25

Saving is always important. It is considered a good practice to consistently set aside part of each of your paychecks when you are young to have money later. It is equally important to continue saving even after you grow older. As This chart from Business Insider shows, there are major differences between individuals who not only start to save money early on, but continue to save money throughout their career.

Graphic: Growth of a Retirement Account From the Age of 25

A twenty-five year old who saves five thousand dollars annually between the ages of twenty-five and thirty five is expected to have a nest egg of one million dollars by the age of sixty five.

A person who starts saving from age thirty five will have considerably less at five hundred thousand or less, but will still have a good cushion for retirement.

Saving early can actually turn into earning later on. Simply this is because the longer investments have to mature, the higher the return they will have. On average a person who only saves and invests $5,000 annually between the ages of 25 and 35 will actually have more money than someone who starts saving at the same rate from age 35 to 65.