PCC Scroll: Your Money Matters

When it comes to retirement, investing is the way to multiply your money and build your retirement savings. There are different ways you can invest.

 

As part of their benefits package, many employers began offering 401s as a supplement (and in most cases nowadays as a replacement) to pensions around 1978. 401s are retirement plans sponsored by your employer that offer a mix of mutual funds composed of stocks, bonds and money market investments. Most are target-dated, so your portfolio should become more conservative as you near retirement age. Many employers will match up to a certain dollar amount so be sure to take advantage of that. Most programs automatically deduct the amount from your paycheck and there is a legal allowable amount you can invest each year.

 

With 401s, employees save and invest money from their paychecks before taxes are taken out, known as salary deferral contributions. The money earned is placed in the plan and saved for retirement. Inside the plan, the money can grow tax-deferred. Normally, income taxes would have been withheld off of the money earned. But with 401s, you don’t pay income tax in the current year. Taxes won’t be paid until money is withdrawn from the account during retirement. Please note that there is a penalty fee if you withdraw funds before a certain age, normally 59 and a half. You also must begin withdrawing money out by a certain age or face a penalty.

 

You can invest into an individual retirement account (IRA). IRAs are individual accounts, so you can’t share one with your spouse. There are two types: traditional IRA and ROTH IRA. You can have money automatically deducted from your bank account into your IRA

account(s) and there is a maximum amount you can contribute toward both IRAs each year. Traditional IRAs are tax deferred like 401s. You won’t pay taxes until you begin withdrawing money. When you begin withdrawing money, it will be taxed as part of your regular income. With a ROTH IRA, the money you contribute has already been taxed. When you begin withdrawing money, taxes would have already been paid. Like 401s, you will pay a penalty if you take money out before you reach a certain age.

 

If you are confident in your investment skills, you can invest on your own. Be sure to do your research and pay attention to when it is time to buy and sell. You can also invest with a financial planner who can help manage your portfolio based on your risk tolerance. If you go the advisor route, be sure to understand the fee structure.

 

You can invest in real estate. For example, you could own a rental home. The caveat is to remember to have money set aside for when your rental property is vacant. Be sure to have money set aside for planned and unplanned maintenance as well and be aware of rising property taxes. People also invest in commercial real estate like apartment buildings. Some people flip homes. This is normally done in “hot” markets but be aware that markets can cool off very quickly.

 

Another small way to invest could be opening an interest-bearing checking account. Please note that they normally require a high balance to open and maintain.

 

Don’t forget to set a goal to be debt free. The money you were using for credit card and other debt could then go toward investing in your future. In addition, taking a side job can give you extra money to either pay off debt or invest in your future.

 

The most important thing is to remember to have your money work for you. You want to be able to retire one day and in comfort.

 

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