Short and sweat, if you don’t have a retirement savings plan in place, strongly consider your options on how to get started. Coming from someone who works for a major Financial Advisory company, I have learned a few things over the years, and this being one of them. It is forced savings.
The benefit to you… your money will grow/compound tax-deferred. ie: you do not pay taxes on the money going into your IRA and defer your taxes until you withdrawal the money on the back-end (or retirement). This means you decrease your taxable earnings/salary in the beginning and the IRA savings grows tax-deferred.
A quick example for you:
If you had contributed $100/month for 30 years to a tax-deferred IRA, then paid 25% tax on your withdrawals at retirement, you would net approximately $113k (8% assumed average annual rate of return). However, in an account thatâ€™s taxed annually at 25%, your total would have been only $101k â€” almost $12k less just because you had to pay taxes up front.
Currently, an individual can contribute $4k to an IRA annually which will remain at $4k through 2007. In 2008 the limit will increase to $5k per year.
Whether you are 20 years of age or 60, it is not too late or too early to think about retirement. Contact a local Financial Advisor to get more details on your options on protecting yourself and planning for retirement. Those who begin to think about retirement early, are the happiest when their retirement goals are realized earlier than those who did not actively plan for their retirement. Don’t get caught in working two jobs when you are 60, that is the time when you should be enjoying life at its fullest.