Saving for retirement is difficult so many employers have provided retirement plans to their employees, with the most popular being the 401(k) plan.  A 401(k) plan is a defined-contribution plan, where you make regular contributions into an account that you own and make all of the investment decisions for.  401(k) plans allow people to finance their own retirement and have sole authority over the decisions that will affect their future.

Employer-sponsored 401(k) plans are one of the best places to save for retirement because many employers match your contribution up to a certain amount, giving employees a guaranteed return on their money.  There is also numerous tax benefits associated with these plans, including allowing employees to make their contributions on money that has not yet been taxed, reducing their taxable income by the amount contributed.

Saving in a 401(k) plan is simple.  You decide the amount to contribute, typically 3%-10% of your salary, and the amount to contribute is automatically deducted from your paycheck each pay period.  Contributions are held in your account and are invested in mutual funds chosen for the plan by the company.  Most companies will have a wide selection of different mutual funds to choose from reflecting differing levels of risk and the employee picks which mutual fund to invest the money in their 401(k) account in.

The maximum contribution to a 401(k) plan is $16,500 annually.  Individuals that are 50 or older can contribute an additional $5,500 to their 401(k) plan as a “catch-up contribution.”  The money in your 401(k) account will grow tax-free, but tax penalties will be charged on all withdrawals from the account made before you reach the age of 59 ½.  This penalty fee is generally 10% on top of ordinary income taxes on the money withdrawn.   To avoid the penalties, the money in your 401(k) account should be left alone until you retire.

Retirement plans differ from company to company, but most medium-sized and large companies offer 401(k) plans.  Certain employees of public schools, hospitals, and certain tax-exempt organizations offer their employees 403(b) plans and government employees are offered 457 plans, both of which are very similar to 401(k) plans.  Most companies have phased out their pension plans due the high costs of the plans, so most people need to think about financing their own retirement.

If you’re already doing a 401K, you might plan on adding an IRA to the mix. The Lending Club IRA is a great option. Some are concerned about Lending Club, but there is no Lending Club Scam. Lending Club has a B+ rating from the Better Business Bureau and is regulated by the SEC.

Getting your retirement funds on track can be a difficult task as there are many different variables to consider and complex choices to make.  The worst thing that you can do is to not do anything and put off saving for retirement for a later date, as every day missed is a day that you are not earning a return on your retirement fund.  Here are some simple tips for jump-starting your retirement fund and getting your retirement plans on track.

Save 10% Of Income

Although 10% of your income may seem like a significant amount to be saving for retirement, it will allow you to grow your retirement account at a reasonable pace while still giving you plenty of income to maintain your lifestyle.  Placing 10% of your income into your retirement fund during each pay period allows you to shield the money from taxation and remove the money from your spending funds before you notice that it is gone.  Over time, this small percentage will grow into a large balance that can be used to supplement any additional income earned during your retirement years.

Utilize Employer Matching Funds

Many companies that offer 401(k) programs for their employees also have an employer match benefit where the company will contribute a matching amount to the employee’s retirement plan up to a certain percentage.  The employers do this to encourage enrollment in the retirement plans they offer to their employees and to help their employees save for retirement over the long term.  If your employer offers this option, be sure to take advantage of it because it is an offer of free money for no additional work.

Try To Max Out Contributions

Many retirement plans that allow you to save money for retirement tax-free have annual contribution limits set by the government to prevent abuses in the plans.  If you are able, you should try to max out your contributions to your retirement plan each year to save as much money as you can tax-free.  Be sure that your contributions do not put you into an economic hardship though, as the tax penalties for withdrawing money from a retirement account early can be very expensive.

When it comes to saving for retirement, excuses and reasons to put off saving abound.  Maybe we believe that there are more important things to spend our money on or that retirement is so far away that we have plenty of time before we must begin.  Although these justifications may seem reasonable at the time, they can do great damage to your financial future if they prevent you from saving adequately for your retirement years.

Here are the most common reasons for not saving for retirement and how to overcome them.

I Don’t Earn Enough Money!

If you do not earn a big salary, it can be difficult to save for retirement because there are many immediate demands on your income.  Although you may be living paycheck to paycheck, saving even small amounts can significantly improve your financial outlook for your retirement years.  If you can save $20 per month, at the end of the year you will have saved $240 with little change in your quality of life.  As you grow accustomed to putting a small amount into savings each month, gradually increase the amount saved by allocating half the amount of received pay raises or bonuses into the retirement account.

I Need To Save For College First!

Many parents put off saving for their retirement so that they can save for their children’s college education first.  Experts warn against neglecting your retirement savings to fund a college savings plan because there are more opportunities to borrow or gain money for college than there are opportunities to obtain extra money for retirement.  Parents can always help their children pay off a student loan and should focus on ensuring that their retirement years will be secure so they will not be a financial burden on their children later in life.

I Have Plenty Of Time For Saving!

Focusing on a financial goal that is decades away can be very difficult with so many immediate expenses facing us everyday.  Saving for retirement now will reduce the amount of disposable income you have for other purchases, but beginning early means that you can save a lower amount of money over a longer period of time to reach the same savings goal.  An individual in their mid-20’s that saves $2,500 per year in a retirement account earning an average of 7% interest can have nearly $518,000 saved by age 65.  An individual beginning to save at age 40 would have to place nearly $7,900 per year into the account to reach the same goal.

One of the most difficult financial decisions to make is how much you should be saving for a comfortable retirement.  There are so many unknowns looking that far into the future that many people are so unsure of what to do that they do nothing at all.  Finding the balance between preparing for tomorrow and sacrificing luxuries today can be hard, but by following some simple rules of saving, you may be able to save enough for retirement while still enjoying the quality of life you desire today.

Financial experts recommend that between 10% and 20% of your income be put away for retirement savings and the percentage that you choose to save will depend on what you would like to do during your retirement and whether you will have any other sources of income during your retirement years.  Here is how each of those saving percentages will affect your retirement years.

10% Of Earnings Saved

Saving 10% of your current earnings for retirement should be enough to cover the basic necessities of your retirement years.  Saving 10% is recommended for those who anticipate having other income streams during their retirement years that will be able to supplement their retirement savings or plan on working part time during their retirement years.  10% of current earnings is a reasonable estimate for basic retirement necessities if you begin saving for retirement before you reach the age of 30, but if you begin later in life, you will need to add another 5% of earnings to your savings to make up for the amount not deposited in earlier years.

15% Of Earnings Saved

Saving 15% of current earnings in a retirement fund should allow you to maintain your current quality of life during your retirement years.  This amount should cover all of your regular household expenses plus enough for small luxuries like occasional meals in restaurants or trips to the movies. This amount is recommended for individuals that plan on relaxing or following inexpensive hobbies during their retirement years.

20% Of Earnings Saved

If you plan on spending your retirement traveling from state to state or seeing exotic locations, no less than 20% of your current earnings should be placed into your retirement account.  If placed into an interest bearing retirement savings account, you will have a significant amount saved for your retirement.  Traveling is expensive and gets more expensive every year so it is best to plan accordingly and save as much as you can to be able to live the lifestyle you would like after you have retired.

An important part of successful financial planning is planning for retirement and the earlier you begin, the better off you will be.  There are a wide variety of investment opportunities available to choose from for retirement planning with one of the most popular being the Roth IRA.  Since its introduction in 1998, the Roth IRA has offered investors a tax-free investment vehicle that they can use to save for their retirement years.  There are a number of advantages and disadvantages to Roth IRAs and knowing what they are will help you make the decision of whether a Roth IRA is the right investment for you.

Roth IRA Advantages

One of the biggest advantages of a Roth IRA is the simplicity of setting up the account.  Most people are able to provide the information required for a new Roth IRA within minutes and can set up their account with minimal effort.  There are a wide range of options for investing the money contributed to the account and the account holder is not penalized for withdrawing funds that they have contributed to the account before the age of 59 ½.

Account earnings up to the amount of $10,000 can be withdrawn from the balance of the account to assist with the down payment for a home, as long as the home will be your primary residence.  You can elect to have the Roth IRA transferred to a beneficiary in the event of your death and the beneficiary can combine that account with his or her own Roth IRA penalty free.  With a Roth IRA, you do not have to start taking money from the account once you have reached a certain age and can save the money in the account for as long as you desire.

Roth IRA Disadvantages

One of the biggest disadvantages to a Roth IRA is the strict income limitations that must be adhered to open and maintain an account.  If you do not meet the income limitations, you will be unable to open a Roth IRA and if your income increases past the limit, you will no longer be able to contribute funds to the Roth IRA.  Roth IRA contributions are taxed on the front end and do not reduce your adjusted gross income for the year like regular IRAs and other retirement plans.

Annual contributions to a Roth IRA are capped at $5,000 per year for individuals that are under the age of 50 and are capped at $6,000 per year for individuals that are 50 years old or older.  Earnings from the account can be withdrawn prior to the age of 59 ½, but you will pay a withdrawal fee of 10% for extracting the earnings from the account.  There are many advantages and disadvantages associated with Roth IRAs and each should be taken into consideration before making the decision of whether to open an account.

A Roth IRA is a popular way to save for retirement. It acts like a savings account, but generates a much higher profit and is designed to compound and grow for many years until the owner reaches retirement age. The profit that is earned is reinvested in the Roth IRA account until it matures to a set date (when the person wants to retire).

Money contributed to a Roth IRA is done on an after-tax basis. This means that you won’t have to pay taxes on the earnings when you want to withdraw from the account. In comparison, a 401(k) retirement account receives contributions before taxes are paid, so you have to pay taxes on them when you withdraw funds.

Roth IRAs also offer more flexibility than a 401k because you can withdraw the funds without the huge penalties before retirement (if you meet their criteria), where as withdrawals from a 401k before retirement results in high penalties and income tax implications.

Roth IRAs do not require that you begin withdrawing your money by a certain age. You are able to keep contributing to it for as long as you want to. Even if you have no intention of ever withdrawing the money, your beneficiaries will inherit it with no penalties attached to the money. They are able to keep the Roth IRA to let it keep collecting interest, or withdraw the funds – tax free.

There are some restrictions on Roth IRAs though. If you are single and make more than $110,000 per year, or if you are married and file taxes jointly, and earn more than $160,000 per year (or more), you’re not able to contribute to a Roth IRA. This doesn’t mean you can’t save for retirement, there are many other options available for you to set up a retirement fund too, just not with a Roth IRA. On the other end, if you only make $3,000 per year, you are only able to contribute (at most) $3,000 per year to a Roth IRA. For everyone else, you are able to contribute a set amount (determined by age) annually.

Depending on your financial situation, a Roth IRA may be a great single, or additional retirement plan for your future. It is always best to get started saving money for retirement right away, and with compounding interest it will only help you save more if you start sooner. If you work at a place that matches or gives a percent on a 401(k) plan, it is always advised to do that too, who doesn’t like free money from their employer?

In a couple of reports recently released from the U.S. Small Business Administration, the findings were over 50 million people working in the American workforce don’t have any type of employer-sponsored retirement plans, and of those offered them, over 50 percent don’t bother enrolling in them.

Now this is look upon as a big deal by the government study, but for those of us looking to increase out savings and build up a retirement fund, the importance isn’t what particular vehicle we use to build it up, but rather that we have plan in place we consistently contribute to.

First of all, let’s very briefly not that while the numbers above may be accurate in general, they don’t necessarily reflect the reality of the situation. Many government studies like this don’t delve deeply into what is happening, and can give a distorted view of things. For example, many people included in the study have a spouse which is building up their retirement through their workplace, and so the other spouse doesn’t use their particular fund, nor care about doing it. That skews the numbers, and changes a lot of the ominous feelings associated with it.

Another factor could be many people are saving on their own and investing some in a way that they aren’t attracted to a retirement plan offered in the workplace. I’m like that, but then I know a lot about investing and savings, and have the discipline to do it.

What I want to get at in this article is no matter what savings or investment vehicle we use to build our retirement fund or our cash on hand in case of emergencies, we must take charge of that strategy and own it. Nobody cares whether you’re prepared or not, and if we don’t take charge of our finances, nobody will.

Even if you do have an employee retirement plan you have entered into, you must make decisions on how you want you capital dispersed in it, in the sense of the level of risk you’re willing to take and other factors related to it. Do your homework even here, don’t just let someone else make the decision for you.

A basic rule of thumb is the younger you are the more risk you can take. While the older you get the more the term safety should be part of your practical investment strategy.

If you’re the type that has no discipline whatsoever in finances, then if you’re offered a chance at a retirement contribution through work, that would probably be the best way for you to do it.

What I’m saying is it’s not necessary to have that to build up your retirement fund, especially if you’re not offered it through your job or you don’t want to participate in it.
 
Again, it’s more important to have a plan you’re consistent in contributing to than what that plan is.

Many people say they aren’t able to afford giving to a retirement plan. Okay, if that’s you, just take a few dollars a month and start in a money market or savings account at your bank. Just don’t do nothing, as it creates habits that are hard to break even when you do generate more income.

Something is better than nothing no matter how small the beginning is. This especially true in building a retirement savings fund. If you don’t take charge of your financial future, there is no one else out there that will bother to take the time to do it.

Concerns from the economic crisis have those quickly approaching retirement wondering how to continue to grow their retirement fund in order to retire comfortably.

If you’re one of them, or are in your mid-40s, you want to start thinking in terms the catch-up provisions allowed by law for the time you reach 50, whereby you can put away another $5,500 into a 401(k), 403(b), or government 457 plan. Any of these quality for the extra money.

So whether you’re late to the funding of your retirement game or are approaching 50, there are options available where you can make up those lost years. It’s better to start right where you’re at than to think you’re too late and do nothing about it. That’s why the added incentive of $5,500 a year is allowed for those 50 or older in age.

What’s amazing about this particular provision, is it has been in place from the government since 2002, yet only about 13 percent of those eligible use it to build up their retirement nest egg. Incredible when you think of what another $5,000 a year can build up to over a decade or two.

Another valuable part of the catch-up provisions is the additional ability to put away another $1,000 to a Roth or traditional IRA, as well as another $2,500 to a Simple IRA. All of this can make a huge increase in your retirement when implemented together.

That means if you take full advantage of the catch-up provisions for the approved of retirement accounts listed above, you could put away $22,000 annually there; $6,000 a year in a Roth or traditional IRA; and $14,000 more to the Simple IRA (including $2,500 catch-up). Not bad at all.

Most people balk at this point because they wonder where they’re going to get the extra money to invest. But there are a ton of ways to cut back on expenses when you start thinking about it, and you begin at the things you’re paying for you don’t need to have.

Can you walk or ride a bike rather than pay for an expensive health-club membership? What about all the bells and whistles on a mobile phone contract? Do you really need the hundreds of channels on your cable TV contract?

You get the idea. There are tons of ways to cut back expense without completely taking away some of the enjoyment and pleasures of life. Just step back and look at them objectively and you’ll find hundreds of dollars a month available to use the catch-up provisions which allow you to put away thousands more a year into your retirement.

Once you get to that age, you’ll be glad you took the steps and a little bit of temporary sacrifice to do it.

With the collapse of the banking system and unsurety of a lot of investments, many people are rightfully concerned about where to put their money; not only to increase it, but to even hold on to it.

Although we usually talk about what is considered very safe investments at Savings Toolbox, there is one investment that has been largely ignored for a long time because it’s somewhat boring and unexciting to talk about or invest in, and that is the incredible safety and value in targeting companies that pay out dividends.

With safety being one of the major concern at Savings Toolbox, we’ll focus on how you can invest in a company that almost ensures a good return for years into the future, no matter what the current economic conditions are, and whether the stock price goes up or down.

The secret in this is to find companies that have a record over a period of time of raising their dividends year after year. That means that they are in a great competitive position and as Warren Buffett would say, have a moat around them protecting their business from competitive pressures.

For example, take Wal-Mart (NYSE: WMT). Every year since they became a public company, they’ve increased their dividend year after year. So whether their stock price went up or down or not didn’t matter, you still build wealth through the dividends always kicking in. Any company that has a proven record of increasing their dividends every year means they have a competitive advantage over the market of markets they serve, and even if you don’t understand their overall business, that in itself will be one of the key metrics to use in determining how strong of a company they are.

The second part of the power of investing in a company for their dividends is to be sure to reinvest those dividends back into the company. That will build up uninterruptedly for years into the future, and ensure a safe and sound return until the day you want to tap it for retirement.

Why can this happen? When a company starts to mature while dominating their market, the need for capital to market and expand the business at a strong pace recedes, and so capital expenditures decrease, making the company strong in cash, which is the key to ongoing dividends.

So our job is to find companies like a Wal-Mart and others that have been around even longer, and find out the history of their dividend payments. When you do, you understand that they have prospered during good times and bad, and so can be counted on to build your wealth with a long term horizon in mind, and do it safely. Don’t underestimate of be afraid of investing in these companies, just to invest in companies that don’t have that type of proven dividend-increasing track record.

It might appear that this is for those who are younger and have time to follow the advice given, but it is never too late to begin planning to make your dreams come true.

Plan early for it. Not just in the financial way, but in the planning for enjoyment part, too. Once you have written down your financial goals for retirement, write down goals for things that you want to do as a part of retirement. Do not be afraid to put things on your list that you might think are too big. You will never know what you can achieve until you are willing to dream about and plan for it.

Reduce your debt as you go. This doesn’t mean just paying off your house. You must work towards debt freedom throughout all of your life. Imagine being able to retire with no debt other than monthly recurring expenses. Then, the income from your retirement will sustain you easily.

Invest in 401k and IRA accounts. Begin early and invest often and generously. If you are young, your savings will add up quickly and by the time you get to retirement age, you will have more than enough to draw on and use to support you throughout all of your retirement.

Plan to give to others. Once you find that all of your needs are cared for, be sure to have a will in order to pass on anything you leave behind. Or, if you so desire, look for organizations and opportunities to which you can give money. Philanthropy has its own rewards in the satisfaction that it provides those who give generously to see a goal met or need covered.

Refuse to sit still. You might be like some and find that retirement bores you. Find something to which you can give your time. It could be a second career or something that you always wanted to pursue but making a career change before never made financial sense. There are opportunities all around you.

You might even consider getting involved in the Small Business Administration and help fledgling businesses make wise choices and use their resources wisely as they benefit from your years of experience.

Remember that retirement does not mean sitting in a rocking chair the rest of your life. It means making the best of the time that you have now that your primary career is over and your retirement has officially begun. Indeed it can be the best time of your life.

Good savings accounts are sometimes hard to find. You can usually find the best rates at an online bank but you have to also be aware of other factors such as whether there’s a minimum balance requirement or whether there are monthly fees if you fall below a certain amount. These days you should also do a background check on every bank to see if it’s in any sort of financial trouble.