With the rising cost of living, a check from Social Security often amounts to just a small amount of the money needed in retirement. And with improvements in healthcare, individuals are living longer and need more money for retirement than in the past. The challenges can be shown in statistics:
- One in five people who are near retirement age have no money saved.
- Each day, 10,000 people retire.
- Projections show that the percentage of the American population over 65 will amount to 21% by 2050.
There is an avenue available to those who are aware of it: The 401k and Individual Retirement Account. Both options are designed for those saving for retirement and come with numerous incentives that encourage contributions, from you and from your employer. In addition, both are managed by an investment advisor, often at investment firms.
The 401k originally started as a push from Congress to allow citizens an easier way to save money. The 401k was born and came with it a more effective way of wealth management for Americans who might not have experience with the intricate details of the stock market.
Two of the highlights about the 401k are very beneficial to saving for retirement: First, your contributions to the account are tax deductible, meaning if you put in $4,000 per year in the account, you won’t have to pay taxes on the $4,000. Also, companies often offer to match your contribution in the 401k, meaning you’re earning money just by setting it aside for retirement.
The Individual Retirement Account
The Individual Retirement Account (IRA) is similar to the 401k in the respect that often contributions to those accounts are tax-deductible. There are a few different types, including the Roth IRA and the SIMPLE IRA. With the IRA, investments are sometimes limited to the more fundamental types of investments such as stocks or bonds or mutual funds. This is where an investment advisor comes in.
An investment advisor is someone educated and trained to improve the performance of your investments. This may mean spotting trends in industries to choose more profitable stocks or vary up your mutual fund to diversify it further. Similar titles include a financial advisor or financial planner.
They can specialize in asset management and often work for a wealth management service. The idea is to take that $20,000 you’ve invested in your 401k or IRA and increase the number, with you having to do very little.
In a recent survey, 41% of those between the ages of 18-29 said they have never thought about retirement planning. And according to the U.S. Bureau of Labor, just 53% of the civilian workforce participates or contributes to a retirement plan. It’s a dire need, and the points in this article are here to help with this complicated process.