Save Now, Play Later- Budgeting For Financial Security In Your Life After 25

You will likely enjoy your retirement years much more if you plan well while you’re young. If you can think of retirement as another exciting phase of your life, you will be motivated now to set aside enough money to be comfortable and self-sufficient when you quit working. For extra help, life coaches can provide assistance in assessing how much money you will need for retirement.

• Save

There are several things you can do to save money. Just a few options include 401k and employer-subsidized savings, IRAs and traditional savings or money market accounts.

401k

A 401k is an employer-sponsored savings plan for employees.

• Paying taxes is one of the few certainties in life (it’s a good thing efiling is pretty easy), but paying taxes on the money you put into your 401k is deferred until you withdraw it at retirement. Not only is this like a long-term interest-free loan from the government, but it’s also helpful since your retirement income tax bracket is usually lower than your full-time employment tax bracket
• Money is deducted from your paycheck before income is calculated, thereby lowering your current taxable income.
• Amount of annual contribution is limited. For 2012, you can contribute up to $17,000.
• It isn’t required, but many employers will match a percentage of your 401k contribution. If your employer does this, take full advantage of the opportunity and contribute as much as you can afford.

IRAs

There is the traditional IRA and the Roth IRA. For 2012, the maximum amount you can contribute to all of your traditional and Roth IRAs is the smaller of $5000 (up to age 49) or your taxable compensation. (Taxable compensation is based on marital status, tax-return filing status and amount of earnings.)

Traditional IRA

• Contributions may be tax-deductible
• Funds in an IRA are tax-deferred meaning you don’t pay any taxes until you withdraw money.
• No contributions are allowed after age 70 ½

Roth IRA

• Contributions are not tax-deductible
• When you take money out, it will be tax-free
• You can continue to make contributions after you reach age 70 ½

Savings and Money Market Accounts

Having some cash liquidity is a good idea in case of an emergency. Savings and money market accounts won’t make you rich, but you can earn interest for keeping some money in these types of accounts. Money market accounts usually earn a slightly higher rate of interest, but also require a higher initial deposit.

Making the Most of Your Savings

Look at your current income and resolve to set aside some funds for retirement. Be realistic when determining how much you need to live on now and what you’d like to have when you retire. Again, if you have questions about what savings plans would work best for you, there are financial life coaches available to help you.

It’s good to make some sacrifices for your future, but don’t quit enjoying life now. Approach retirement savings with balance and you can take pleasure in all of your tomorrows.