By Karin Price Mueller
A pension is a security blanket for retirees. Even if you weren't a great saver during your working years, a pension will give you a monthly check, no matter what.
We know lots of our readers have pension-envy, and we can't blame you.
But if you don't have a job that offers a pension — and few besides government workers do — you're going to have to plan.
Before you say, "No way, forget it, I'll never retire," or "I can't afford to stop working," we're here to tell you you're wrong.
Here's an action plan to get you ready for retirement.
Saving doesn't have to be painful. (pixabay.com)
No matter how tight money is, you can take small steps to build your nest egg without dramatically changing your lifestyle.
Start by looking at your employer's retirement plan, such as a 401(k).
A 401(k) allows you to save in an account that will grow tax-deferred, meaning you won't owe taxes on your earnings until you withdraw the money.
Just as important, your contributions will lower your taxable income every year. If you earn $50,000 and save $5,000 to a 401(k), you'll only be taxed on $45,000 of income.
Try this calculator to see how your take-home pay would change if you contribute to a 401(k).
Make sure you don't miss out on free money. Many employers also offer so-called "matching funds." For example, your employer might add $1 for every $1 you save up to a certain limit.
If you don't have a 401(k), you can open an IRA. Traditional IRAs also have the benefit of tax-deferred growth and lowering your taxable income (if you qualify).
Another option is a Roth IRA, but that won't help your tax bill today.
You could also establish automatic savings to a regular bank account, but the account will probably earn little interest and more importantly, you might be tempted to raid the account for non-retirement expenses. Don't do it.
Make savnigs easy by having money taken from your paycheck or bank account each month. (pixabay.com)
Whatever kind of retirement account you choose, you can arrange to have funds go to the account automatically.
Your 401(k) contributions will come directly from your paycheck, so you don't have to worry about sending money after you set up the account.
With an IRA, you can ask the investment company to take money directly from your checking account every month.
Both options put your savings plan on auto-pilot.
You can find extra money in your budget. (pixabay.com)
You may think you can't afford it, but you can. Really, you can.
Take a look at your current budget and where your money goes. You can probably find ways to cut back your spending just enough to redirect a few bucks to a retirement account.
For example, let's say you go to Wawa every day before work, five days a week, 52 weeks a year. You spend $5 each time for your coffee and breakfast sandwich. That adds up to $1,300 a year.
If you instead make your own coffee and invest the $1,300, it would be worth nearly $18,000 in 10 years assuming you earned an average of 7 percent on your investment. And that doesn't count any employer matching funds.
That's not enough to retire on, but it's a nice trade-off for skipping coffee. It's a good start.
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