Retirement is so far from my mind, I honestly wondered to myself if I should skip this chapter. But I’m glad I didn’t. For one, Lapin reaffirmed that paying down debt is priority #1 before heavily investing in retirement, but moreover, even starting a small retirement account early can be helpful to “future you” in the long run.
Step 9: Are you ready to retire?
I don’t know if I am going to be able to use Social Security. Like other millennials, we’re supposedly paying into Social Security, Medicad, and who knows what, but are we going to see the benefits of it in 50 years?? In a way, setting up a retirement account when you’re young will hopefully be more financially secure than applying and receiving Social Security checks, if they are even available.
Types of retirement accounts:
- 401(k): From your employer, generally has a matching program, but is linked to trusting your employer with money instead of yourself being in charge. This option works best for me (and luckily I enrolled when I started my current job) because I don’t have to think about it. I’m not ready to invest heavily at this time. Lapin suggests 15% of each paycheck goes into retirement (not feasible for me at all!). Lapin does not recommend a 401(k) if you do not have 6-9 months savings, significant credit card debt, and the employer doesn’t match contributions. I’m working on it!
- IRA: Individual Retirement Account, a retirement account that is something you are in control of, and you are responsible to adding money to the account. The pros for IRA is that there are no penalties for taking out money, and it reduces how much you pay in taxes. As a con, Lapin says there are limits to how much can be contributed each year (not a problem in my opinion). When I was 21 I qualified to open an IRA with the retail company I was working for because I had been there for a few years. I opened it and contributed a small amount, but I haven’t invested anything since then. Time to re-invest?
- Roth IRA: Something I am not interested in accounting is taxes, basically for a Roth IRA you pay taxes up front so you don’t have to pay when you are taking money out of the retirement account. Tax is paid up front. The pro to this is that tax rates could change and you could potentially be paying more on taxes for the entire amount if you invested in IRA, rather than paying taxes for each contribution with the Roth IRA. Makes sense, but if you’re thinking about how much to contribute to retirement accounts, that should also be taken into consideration. Further, with a Roth IRA, like a regular IRA, the money in the account can be taken out at any time. Sounds nice!
In an ideal world, your investments are diversified into each type of account and you would have $1 Million saved for retirement (as an individual). Personally, I tend to choose the easiest way and go from there. By choosing a 401(k) as my primary investment, a bit of my money is taken out of my paycheck and I don’t have to think about it. For an IRA, I’m in control of the money that goes into the account. It’s more hands on, but I still don’t have to think about taxes or anything too complicated for a Tax Return right now. From reading this book, articles online, and common sense, I know that saving money isn’t about the right now. I’m learning that investing in yourself, especially for retirement, will go a long way. I still think of my present self and future self as two separate entities so it’s hard to take away something good from the present ($$$) to make my future self feel financially secure.
The end of the chapter is wrapped up by discussing estate planning such as creating a will, getting life insurance, and organizing how you want your assets and cash on hand to be distributed. It’s morbid, but it should be done. The way she makes it sound, it wouldn’t be that complicated to write out your own will or print one off a legal website (and if you’re young, that’s the easiest option). The hesitation I have, yet again, is getting life insurance if there’s no one I have to support after I die. So I’ll keep it in the back of my mind, but I’m not going to jump on the life insurance boat just yet.