Retirement

Benefits of an IRA

You have probably heard something at some point about making contributions into an Individual Retirement Account (IRA) to prepare for retirement. Retirement and investing can seem scary and difficult or only for the super rich but I’m here to tell you: That is a lie. You can (and should!) begin investing for retirement and an IRA is a fantastic way to do just that.

The most popular types of IRA’s are the Traditional IRA and the Roth IRA. These investment vehicles are great ways to accumulate retirement money although they differ in their taxation. You can learn more about their differences in our podcast, Roth vs. Traditional IRA.

When you decide to invest into an IRA, regardless of the one you choose, you can expect to experience a variety of benefits.

Taxation: When you invest into a Traditional IRA, those contributions are made with “pre-tax” dollars which means that you can deduct them from your income. In a Roth IRA, contributions are made with after-tax dollars. This means that while you will not get a tax deduction, you will not have to pay any taxes when you withdraw the money in retirement. The tax benefits of both accounts can provide great traction when accumulating money for retirement.

Automation: One of the reasons IRAs are so popular is because they allow you to automate your savings. These accounts are incredibly easy to start and with a simple bank draft, you can make sure that you are investing every single month.

Compound Interest: After you have set up your IRA and automate your contributions, you will eventually be able to see the 8th Wonder of the World: Compound Interest. This means that once you start adding money you will start earning interest on that money. And then interest on THAT money. Your money will begin to work for you.

These are only a few of the benefits that you’ll experience when investing into an IRA. Ultimately, you want to make sure that you are taking advantage of every benefit that you can when you’re trying to save money for retirement. Whether you are fast approaching retirement or just getting started in life, using one of these accounts can greatly help you accumulate money so you can live your best life when you eventually leave the workforce.  

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MONDAY MONEY TIP PODCAST: Roth vs. Traditional IRA

In Episode 23 of The Monday Money Tip Podcast, we’re discussing how to choose between a Roth and Traditional IRA/401k when saving for retirement. In addition, I have some updated information in regards to mortgage rates, savings rates and CD rates. We will also hear a success story from a woman who used a 0% credit card transfer and how it changed her debt freedom journey.

It’s our goal at the end of each episode that you gain hope and encouragement in your financial journey, you’re equipped to take a next step, and that you’ve had FUN with us!

Find the Monday Money Tip Podcast HERE. Please let us know what you think by leaving us a rating!

NOW AVAILABLE TO DOWNLOAD:
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Email info@iwbnin.com to ask questions or share success stories.

Show Notes

About the Episode:

  • Hear Joe answer a question about whether to choose a Roth or Traditional 401k at work.
  • Joe shares information about current mortgage rates, savings rates and CD rates.
  • Megan shares a success story about a woman who gained traction in her debt freedom journey by using a 0% credit card transfer.

Resources:
IWBNIN Next Steps
Marcus by Goldman Sachs
Ally Bank
American Express
0% Credit Card Transfer
IWBNIN Ladder
IRS Website
Voya Retirement Calculator
Fidelity Retirement Calculator

Quote of the Day: “Whether you choose Roth or Traditional, what is most important is that you actually choose one and invest! BOTH are great decisions for your financial future.” – Joe Sangl

 

Pulling Money Out Of Retirement Accounts Early

As people take off on their debt freedom journey, so many times they are tempted to withdraw money from their retirement accounts in an attempt to speed up their debt elimination process. We get questions all the time from people who want to know whether or not we think this is a good idea.

I do not think it is ever a good idea to take money out of a retirement account in an effort to pay off debt. Many people feel like retirement is so far away that they have plenty of time to begin saving. And while you may have plenty of time to start saving, you will never regret starting as early as possible. The key is to start investing early and invest consistently. In all likelihood, no matter when you begin saving for retirement, you will wish you had started sooner.  

When you get started on your debt freedom journey, it can seem like the end is so far away. But I would encourage you to stay the course. Get a budget using one of our FREE tools, calculate your debt freedom date using our FREE calculator and slowly but surely, you will see those debts drop off. And once they are all gone, not only will you be debt free but you will also still have your money working for you in your retirement accounts.

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Make Your Retirement Savings a TOP Priority

Do you feel like retirement is so far away you cannot even imagine it? Or do you feel like retirement is so close that you can taste it? Either way, you should be making your retirement savings a TOP priority today!

Statistics show that many people do not start saving until they are only 10 to 15 years away from retirement! If you choose to wait on starting your retirement savings, you are missing out on something that can actually carry your financial burden called compound interest. Compound interest can take your $100/month investment to $1,176,477 in 40 years. The earlier you start and the more consistent you are, the better off you’ll be when you get ready to retire.

If you are not actively contributing to accounts dedicated to retirement, I would highly encourage you to start doing so immediately! I have never ever heard someone say “Wow I wish I had waited to start saving for retirement” or “Joe I am retired and I just have too much money”. You will never be able to go back and retroactively start your retirement accounts. But what you can do, is make sure that you do not waste another minute and you start investing today.

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Want more tips like this one?  Subscribe to the Monday Money Tip Podcast HERE.

Voya’s Retirement Calculator

As part of our retirement planning series, we’re reviewing various online retirement calculators.

TODAY’S FOCUS: Voya Financial’s MyOrangeMoney Retirement Calculator

Key statistics:

  1. # of Questions: 5 Total Questions
    • “How old are you?”
    • “What’s your annual income?”
    • “How much have you saved for retirement so far?”
    • “How much are you saving per month today?”
    • “How much future income are you expecting from other sources?”
  2. Results: 3 Key Numbers
    • “Estimated monthly income”
    • “Estimated monthly goal”
    • “A difference of”

Thoughts regarding this calculator:

  1. Ease of use: 1  (1: Easy | 5: Challenging | 10: Very Difficult)
  2. Scenario Analysis Excellent. User is able to easily make adjustments to the initial data points using simple sliders and clicks.
  3. Conservative Calculation This calculator is fairly conservative. It assumes the following:
    • Retirement Income: 70% of working income. This might be a little low. Many calculators use 80% as their working assumption.
    • Rate of Return: 5% growth rate is the default. You can adjust this rate up or down using a simple slider.
    • Inflation Rate: This calculator uses 3% inflation rate. This is conservative relative to the more recent past.
  4. Spouse not included The user must combine incomes and investments savings in order to calculate their overall progress toward retirement. While this might seem intuitive for some people, it is not readily obvious.

OVERALL RATING: 4 (out of 5)