4 Reasons Why Retirement Savings Should Be A Priority
Retirement seems to be all that’s on any working adult’s minds. Something that we’ve noticed is that a lot of people know they should be saving for retirement and are passively doing so (or not at all) without necessarily realizing why retirement is so important.
In this article, we will go into detail on the main reasons why you should be saving for retirement.
1. Income tax reduction!
Before making a financial decision, you should ask yourself: how is this helping me? Sure, you’re contributing your own money to your future retirement fund, which means that you take home tiny bit less than you would if you did not contribute to your pension; however, this is actually a benefit to you. The best part is you don’t have to wait to see this benefit.
You are taking home less of your income, but the total effect is less than the amount you contribute because whatever you don’t take home, you are not paying income taxes on. Basically, the reduction in your income is less than what you are contributing, because you are not taxed for these contributions.
2. Future Independence
Imagine you start a family and watch your children grow up and start families of their own. Now, imagine that the roles are reversed and the care you provided for your children growing up – feeding them, putting a roof over their heads, clothing them – your children now had to provide for you simply because you lack the financial resources to care for yourself.
If that seems to be dramatic, it’s not. During your non-working years, you may need to become financially dependent on your children or family members. This is why you need to be certain that you are saving enough to cover your expenses during your later years. After all, you’ve spent the majority of your life working and you want something to show for it! The current measures you take to save for retirement can mean the difference between being dependent and enjoying your financial freedom.
3. Welfare is not always reliable
Should you need it, welfare can provide an excellent tool to use as a stepping stone to financial freedom. However, if you are not saving for retirement, that may be your only choice during your non-working years.
You may be thinking that you can always go back to work and use welfare to supplement your income. Yes, this may be true. But, with age comes failing health and abilities. What if you cannot find a job and have to rely solely on welfare programs? How would that impact your quality of life?
Now is the time when you should be accurately assessing your financial needs. This can ensure that you meet those needs later in life. Programs such as Social Security are excellent supplemental financial resources; however, you may find that they are not enough to cover your retirement expenses. Be sure to speak to a financial adviser to see if you are on the right financial track with your retirement savings. If you aren’t: don’t panic! A financial adviser can help you get there!
4. Return-on-Investments
Say you decide to add your retirement savings to a traditional savings account. You would still be earning an interest on your savings. However, any earnings you get will be taxed. This means the amount you have to reinvest is greatly reduced by taxes. If for example, if you invest $50,000 that garners earnings at an 8{bc669dfb3651bb8509a96034cbe7494d3a811fc0eedf0ddccb239fb9cb737439} rate and you earn $4,000 but you are taxed on 28{bc669dfb3651bb8509a96034cbe7494d3a811fc0eedf0ddccb239fb9cb737439} of that, you would have to pay roughly $1,120 to the government. This leaves you with less to re-invest than you would have if you had invested in a tax-deferred retirement plan.
The larger the saved amount – and the greater the earning period – the more taxes you will pay. When it comes to saving for retirement, a tax-deferred account provides you with a greater return on investment, meaning your money goes farther. And who doesn’t love that?
Bottom Line
Your future is important and saving for your future should be a priority. According to the 2015 Barometer Study – an annual report produced by Life Happens and LIMRA, the world’s leading financial and insurance services trading association – the majority of Americans are worried that they are not saving enough for retirement.
The scariest thing about these findings is that the majority of Americans are right and may find themselves ill-prepared when they are no longer at a working age.
The bottom line is that retirement savings should be a priority. It should be viewed as a cornerstone of financial stability. For more information on how to begin saving for retirement or the types of savings plans available to you, give one of our financial advisers a call or check out our blog!
