Categorized | Retirement, Saving Money

Investing in your Retirement

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Investing. When that word comes to mind, we are often thinking about the amount of money we are willing to risk in order to multiply on our initial investment. But, if you’re going to spend the better part of your time working to build your own wealth, or invest your money into stocks that will pay out in the end, shouldn’t you invest in yourself? After all, who is best going to enjoy the rewards most of all when it comes to the return on your money, if not you?


investing in your retirement (1)Individual Retirement Account(s)

There are two Individual Retirement Accounts (IRAs) that you should pay attention to when investing in your future, traditional IRAs and ROTH IRAs. The majority of companies don’t offer traditional pension programs anymore. Let’s face it, the economy is shaky as best, 401k’s and stock options don’t always prepare you for your retirement. The biggest mistake one can make when preparing for their future is not putting away enough money to live on. Invest in your own future, don’t rely solely on employment programs or social security; it’s simply not enough.


Traditional IRA:

A Traditional IRA can simply be understood as if you are buying a bond or certificate that will mature after you reach the retirement age (65-67). The rates, monetary deposit minimums and maximums are different depending on either your credit union or bank, but the principle remains the same. The biggest difference between a Traditional IRA and a ROTH IRA comes down simply to the money you are looking to invest. Traditional IRAs are purchased with money you haven’t yet been taxed on, therefore, on the back end when you cash out, either the full sum or partial the full depending on the amount you take out, on that amount you will be taxed.


For example:

If you Invest $100.00 in a Traditional IRA, your IRA is worth $100.00

When you cash out, your IRA is worth $100.00 minus the Tax percentage owed on it. So let’s just say that the tax percentage is worth $10.

At maturity your cash out amount would be worth $100.00 – $10, which would leave you with $90.00 of tangible cash.

So if you take out half in one period, and the remaining in another period, you’ll be taxed on each amount per withdrawal. Just like any other type of bond or certificate, you can cash out earlier than the agreed to date, but with a capital loss via penalty fees. Remember, this funding, is meant for retirement…not a rainy day fund; this is a long term investment to secure your retirement.


investing in your retirement (2)ROTH IRA:

A ROTH IRA like a Traditional IRA, follows the same value in purchasing, except you are being taxed upfront on the initial investment purchase. Because you are being taxed on the IRA upfront, when you cash out, there is no tax to be paid; the amount the IRA is worth then can be viewed as a solid and reliable figure.


For Example:

If you invest $100.00 in a ROTH IRA, your IRA is worth the amount after tax.

Your initial investment would be (using the same hypothetical scale as example 1) $100.00 – $10 (tax) = $90.

$90.00 would be your IRAs net worth upon cash out.

Because you are taxed when you purchase the IRA, you cannot be taxed upon maturity, pending you don’t cash out early, those fees would still apply. Both IRAs are great ways to invest in your own personal retirement and are relatively low cost with very little risk. It is a great tool to use and an even greater investment because you will be locked into the interest rate for the term of the IRA, should rates drop, unless specifically expressed by your financial institution. The safety net with a ROTH IRA, when looking at tax structures historically, is if you pay the tax upfront, it’s likely that you’d pay a lower amount today than say 20 -30 years from now. Taxes tend to always raise or level off, and rarely ever decrease.


You can be the master of your own destiny, or at least the master of your own financial security when retirement comes. Since the economy fluctuates, up and down, and will continue throughout your lifetime; purchasing IRAs are just another investment tool that you can use to personally take charge in your retirement funding. Retirement doesn’t have to be so distant, or a thing of the past. Despite the current economy, the path to your retirement remains in your hands, and purchasing an IRA can be the first step towards your financially secure retirement. And there is no limit to how many IRAs you can accrue over time, so if you want to buy one every year at a fixed amount, you can!


*Note: The figures and percentages used in the examples are not representative of actual or current figures or tax rates, they are simply hypothetical explanative variables for visual example purposes.


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