Retirement, for some, seems like a far-off reality that they’ll never have to face. However, for most of us, it’s an inevitable part of life that we’ll have to deal with eventually. With this in mind, it’s important, as per Tommy Shek, to understand retirement accounts and the best ways to save for them so that you can live comfortably after you stop working.
Tommy Shek On Retirement Accounts And Money To Spend
There are many different types of retirement accounts out there, says Tommy Shek, but the most common ones are 401(k)s, traditional IRAs, and Roth IRAs. All of these accounts offer a tax-advantaged way to save for retirement, but they have different rules and guidelines that must be followed.
A 401(k) account is a type of retirement account offered by an employer. It allows employees to save a portion of their salary, tax-free, for retirement. Many employers will also match a portion of their employees’ contributions, which can help to maximize their savings. The key benefit of a 401(k) is that it’s funded with pre-tax dollars, meaning you’ll pay less in taxes now and more in taxes later when you withdraw the money.
Traditional IRAs, on the other hand, are not tied to an employer and can be opened by anyone. Contributions to a traditional IRA are also tax-deductible, meaning you’ll pay less in taxes now and more in taxes later when you withdraw the money. However, unlike a 401(k), you can only contribute up to a certain amount each year.
Finally, a Roth IRA is similar to a traditional IRA in that anyone can open one, but contributions are not tax-deductible. Instead, your contributions grow tax-free, and you can withdraw them tax-free in retirement. The big advantage of a Roth IRA is that you won’t pay taxes on your withdrawals in retirement, which can be a huge benefit if you plan on retiring in a higher tax bracket than you are currently in.
Now that we understand the different types of retirement accounts, how should one go about saving for retirement? The answer depends on your personal financial situation and goals, but a good rule of thumb is to aim to save at least 15% of your income for retirement.
If you have access to a 401(k) through your employer, it’s important to take advantage of it as soon as possible. Start contributing as much as you can and try to increase that amount each year. If your employer offers a matching program, make sure you contribute at least enough to get the full match, as that’s essentially free money.
If you don’t have access to a 401(k), consider opening a traditional or Roth IRA. You can contribute up to a certain amount each year, and the money will grow tax-free until you withdraw it in retirement. If you’re able to contribute the maximum amount each year, you’ll be well on your way to a comfortable retirement.
Of course, saving for retirement is just one part of the equation. Once you’re in retirement, you need to make sure you have enough money to cover all of your expenses. The general rule of thumb is that you’ll need 70-80% of your pre-retirement income to maintain your standard of living in retirement.
To make sure you have enough money to cover your expenses, it’s important, as per Tommy Shek, to have a plan in place. You’ll need to figure out how much money you’ll need each year, how much you’ll have coming in from Social Security and other sources, and how you’ll withdraw money from your retirement accounts to cover the difference.
Tommy Shek’s Concluding Thoughts
In conclusion, retirement accounts are a critical part of saving for retirement. Whether you have a 401(k), a traditional IRA, or a Roth IRA, it’s important to understand the different types of accounts and how they work. According to Tommy Shek, by making contributions now, you can ensure that you have enough money to live comfortably in retirement. And once you get there, you can rest easy knowing that you’ve planned ahead and have the financial resources to enjoy your golden years.