Retirement planning can be overwhelming and challenging. The biggest question most people ask is, “How much money do I need for retirement?” Unfortunately, there isn’t an easy answer because there are so many variables – the lifestyle you want in retirement, your longevity, the return on your investments, etc.
Thankfully Fidelity did extensive research and created a cheat sheet we can use based on our age. As a general rule of thumb, the advice is to have:
- 1 times (1x) your current income saved by age 30
- 3x by age 40
- 6x by age 50
- 8x by age 60
- 10x by age 67
You may not meet all of these milestones but they provide goals to shoot for so you’ll be ready for retirement. If you’re on track, that’s great news! If not, don’t panic because you do have some options to get back on track.
Saving and investing while you are working will make a huge impact on the financial aspect of life in retirement. Credit Unions offer accounts to help you prepare for your retirement and provide you with the financial security you want and need.
Members Trust offers several retirement saving options to help you prepare for your retirement.
Traditional IRA
Traditional IRAs are separate from any employer-provided retirement program. It stays with you even if you change jobs, your marital status, or your address! In most cases, your contribution to a Traditional IRA is tax-deductible, which lowers your taxable income now. Penalty-free withdrawals (you still pay taxes but ideally at a lower tax rate) are allowed at age 59 ½ and older. At age 70 ½, you are required to take a minimum distribution.
Roth IRA
The biggest difference between a Roth IRA and a Traditional IRA is that with Roth IRAs, you are taxed upfront when you contribute to the account. Unlike Traditional IRAs, you can withdraw before reaching 59 ½ years of age without paying tax penalties since you already paid taxes on it; however, you will pay a 10% penalty on the earnings if you withdraw before 59 ½ years of age. This penalty is waived if the money is used for first-time home purchases, medical bills, or college. Also, with a Roth IRA, there is no mandatory distribution requirement for you to take withdrawals at 70 ½.
Simplified Employee Pension
A Simple Employee Pension (SEP) is a retirement plan just for self-employed individuals and small business owners. Contributions to a SEP are tax-deductible, which lowers your tax liability now.
IRA Contribution Limits
You can make 2024 IRA contributions until the unextended federal tax deadline (for income earned in 2024).
IRA and Roth IRA Contribution Limits
| Year | Under age 50 | Age 50 and older |
| 2023 | $6,500 | $7,500 |
| 2024 | $7,000 | $8,000 |
Why Invest in an IRA?
IRAs make sense for a few reasons:
- Because there is no employer match, they are not attached to that employer and you have the freedom to invest on your own terms. It goes wherever you go!
- An IRA with Members Trust helps supplement your conservative investments, diversify your portfolio, and provide financial security.
- If you have maxed out your 401(k) contribution, you can still contribute to an IRA.
- IRAs provide tax benefits.
Even if your retirement is decades away, it’s never too early to start saving money for your retirement. Contact us to discuss your options and start saving!