When you are just starting your career, it is difficult to think ahead to retirement. And if you are fortunate enough to have a job that makes decent money, chances are you work so much that you want to spend it on yourself when you finally get a break. As a result, there is a general lack of motivation for funding a healthy retirement plan, but those who are smart can do two simple things to put them way ahead of the curve.
First: Get your employer match
Free money doesn’t exist, but the closest thing to it is an employer match for your work sponsored retirement plan. When you first started your job, you probably filled out a form regarding this plan, but your main concern at the time was probably how it would affect your net paycheck. What you didn’t realize is that your employer may match a portion of your contributions.
A typical arrangement would be a 50% match of employee contributions up to 3% of salary. So if you make $100,000 and elect to contribute 10% ($10,000), your employer would match the lower of 50% of your contributions ($5,000) or 3% of your salary ($3,000). So in addition to your $10,000 contribution, your employer would put in another $3,000. However, if you put in nothing or even less than 6%, you are leaving money on the table that your employer would have put into your retirement account. You earned it, so you might as well get it.
Second: Don’t forget about Roth IRA contributions
Just because you have access to a retirement account at work doesn’t mean that you cannot or should not contribute to a Roth IRA. And if you don’t have access to an employer sponsored retirement plan, then you definitely should. The current maximum that you can contribute to an IRA in a year is $5,500, or if you are married, then you can each contribute for a total of $11,000. The primary limitation is your income, but if you are married and have gross income of less than $183,000 ($116,000 single), then you can contribute the full amount. Above these benchmarks, Roth contributions will be limited, but you should take advantage of whatever contributions you can make.
Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.