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'Big Joe' Clark column: Making the most of your working years to fund your retirement accounts

This post was originally published on this site

Where has the time gone? I’m the same age my parents were when they had their first grandchild.

Yes, time marches on whether we want it to or not.

Successful retirement plans are built over years. Saving the right amount of your income each year and utilizing the best financial vehicle to accomplish this goal takes perseverance and planning. Legislators are attempting to make serious changes that could impact future opportunities. We need to focus. First consider the time factor.

The compounding of earnings is not an overnight success. But the impact cannot be ignored. Consistent depositing of funds over time and letting those dollars and earnings compound is what Einstein referred to as “the eighth wonder of the world.”

Here’s an example of the impact of time. John, age 20, starts making monthly deposits of $200 into his investment account. His return is 5% each year, and he continues this practice until he is 65. He now has $407,176 while only contributing $108,200. Contrast John with his brother Jared. Jared begins saving at age 35, saving $200 monthly and earning 5% annually. Jared’s account at age 65 will be $228,365. He did contribute less by waiting, but the impact was dire. He contributed a total principal of $84,200.

Time is your friend when you begin early and your enemy when you begin late.

Starting saving is important, but so is where to invest the assets. If available, using a systematic process is beneficial. One of the best ways to accomplish this systematic retirement savings plan is through a work-sponsored retirement plan, a DCP (Defined Contribution Plan) commonly known as a 401(k) for private employers and 403(b)s & 457s for those in the public sectors.

It is common for employee-sponsored plans to have a matching element, and you should consider that impact in making decisions to save or spend your money today.

Individual Retirement Accounts (IRAs) are also available to individuals with current income stipulations. If you can fund an IRA in addition to your defined contribution plan, you should. If you don’t have access to an employer-sponsored retirement plan, IRAs may be your best and only option.

Health Savings Accounts (HSAs) are incredible savings vehicles. Your contribution lowers your taxable income, grows tax-free and remains tax-free when used for medical expenses — including Medicare Part B premiums. You can use the tax-free dollars to pay for coinsurance, copays, and your deductibles. You can roll any unused portion over for future expenses, and income restrictions do not apply. You do have to have a medical plan that meets the standard for HSAs.

Consider these the top three retirement savings vehicles, but also understand that good intentions never paid for a trip to Venice. Consistency in adding to the accounts over time will allow the magic of compound interest to work.

Everyday issues will always arise to thwart your efforts; it takes time and discipline to save money. Invest in yourself to create the retirement you dream of.