The Fifth Milestone of Life: Retirement

By Sandy Botkin, Special for USDR

For those who feel that they are a long way away from retirement, take a tip from me: retirement comes at you very fast. Time really does pass quickly. Every Boy Scout learns to “be prepared.”  Unfortunately, procrastination can be VERY costly. For example, if you put in $5,500 a year, which is the current maximum contribution to an IRA, for thirty years, you will have, depending on earnings assumptions, about $1,000,000 in your retirement fund. However, if you do this for an extra ten years, this $1,000,000 at retirement rises to almost $3,000,000. Ten more years of contributions triples your retirement nest egg. Also, if you invest in a ROTH IRA, you don’t pay tax on the fund at retirement, which in my opinion is the better choice.

Now I can just hear some young people complain that with new families, student loan debt, etc., it is hard to put away $5,500. The answer then is to put away something, even if it is only $2,000.

Here is another tip that points out a VERY widespread mistake. If you contribute the same $5,500 for forty years at the beginning of each year vs. the same $5,500 at the end of each year for forty years, you will have an extra $60,000-$90,000 MORE at retirement. It is the same yearly contribution and the same amount of years. Thus, always contribute to your retirement plan as early in the year as possible.The final tip for this installment involves 401K. Many companies now provide 401Ks for the employees instead of pension plans. As a result, many companies match the employee contributions to some extent. Sadly, I was reading that 50% of people who are in this situation do NOT contribute enough to max out or even get any of the employer contribution. This is INSANE. It is free money that they are turning away. If you work for a company that provides a matching contribution, you NEED to max out whatever contribution that you need to make in order to max out the employer’s contribution. Don’t be a fool by walking away from free money!

All opinions expressed on USDR are those of the author and not necessarily those of US Daily Review.

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