With all the confusing retirement investments out there, it may seem easier to just forget the whole thing and just hope you win the lottery. But planning for your retirement doesn’t have to be hard. The first step is easy: read the information here.

Social Security

The starting point for funding your retirement is Social Security. You’ll get a guaranteed cash payment every month if your employer has made contributions for you into the Social Security system. The money you will receive from Social Security is very important, but you must keep in mind that Social Security will probably be only a small portion of what you will need to live on when you retire.

Retirement Savings

You are never too young to start saving for retirement. The two most important programs for saving for retirement are 401(k) programs and IRAs. One of the great advantages of what’s called a 401(k) plan is that the money you put in is not taxed until you retire. This means you have more money to invest today.

How your employer can help you start saving for retirement

Employer investment plans, like a 401(k) or 403(b), are often the best ways to get started with investing.

A 401 (k) Plan is a special savings and investment account that your employer sets up through an investment company, insurance company, or bank trust department. This is a long-term investment. If you decide to take the money out of this account before you turn 59 ½ without repaying it, you have to pay 10% in federal taxes, plus a penalty from the financial institution. When you’re ready to start depositing money, you should leave it there.

You can contribute a certain percentage of every paycheck into this account without paying taxes on it. Most employers match your contributions up to a certain amount. For example, your company might contribute 50 cents for every $1 you contribute.

Your money is then invested in one or more mutual funds that you can choose from a list your employer gives you. A mutual fund is a company that purchases stocks or bonds.

The total amount of money you can save depends on how much money you will deposit into your account each year, when you will retire, and how much you receive in interest. This is an example of how much you can save with a little effort:

In 45 years, you will save $252,320. You can save even more if you took risks in your investment choices.

You can often borrow against the money in your 401 (k) to pay for medical and education expenses. You can also withdraw money from your account if you’re buying your first home.

IRAs

An Individual Retirement Account (IRA) is an investment account that you set up at a bank, credit union, or other financial institution. If your income is under a certain level, you can open a Roth IRA, which has many tax benefits.

If you’re under 50, you can invest up to $3,000 every year. If you’re 50 and over, you can invest up to $3,500 eIt’s not necessary to deposit this entire amount. Start depositing what you can each month. If you’d like, you can have a certain amount automatically deposited into your IRA from your checking or savings account each month. You can open this type of account with your Social Security Number or your Individual Tax Identification Number (ITIN).very year. Between 2005 and 2007, the maximum amount will be $4,000; after 2008 it will be $5,000.

Like a 401 (k), you need to choose and manage what you invest in. IRAs have more investment choices too, so you can pick individual stocks, mutual funds, bonds, or money market funds, depending on how much risk you want to take. To be on the safer side, you may want to invest your retirement funds in bonds, mutual funds, and money market accounts. Someone at your bank, credit union, or investment company can give you advice on how to invest your money.

For more information on Retirement Plans, go to The Beehive's retirement section. (This will open The Beehive website in a new browser window).

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