I didn’t know! As a graduate nurse, I wasn’t aware my employer offered a retirement account. Perhaps the hospital didn’t offer one in the early nineties. It doesn’t matter because I didn’t stay long enough to qualify. I didn’t stay at my next job long enough either. I put that obligatory one year in for experience and moved on. Eventually I worked for a hospital that offered a pension, which I still collect. Looking back, I wish I had cared about retirement planning. If I had, I would have planned my career differently. I also would have learned about personal finances. Instead, I followed my heart and changed jobs for experience without considering my future. I never thought I would retire because I enjoyed going to work.
A retirement account is a powerful tool that can help you establish your financial future. In this blog post, we’ll cover retirement accounts, from understanding what they are to exploring the different types. We’ll also explore tips for managing them.
What Is a Retirement Account?
A retirement account is a special way to save for when you stop working. It is a dedicated repository for funds you set aside to cover future expenses. Several types of retirement accounts exist. Each with unique features, tax benefits, and risks.
Types of Retirement Accounts
Contribution Plans
Many employers offer contributions plans like a 401(k) or 403 (b). These allow employees to contribute a portion of their pre-tax income into the retirement account. Employers often match part of these contributions. Matching contributions is like free money, making a 401 (k) Plan an attractive choice.
Individual Retirement Accounts (IRAs)
IRAs are personal retirement accounts. Individuals can set up an IRA independently. IRAs come in two primary forms, traditional and Roth. Each has unique tax advantages and rules.
Pension Plans
Pension plans are traditional retirement accounts offered by some employers. The employer manages the investments and guarantees steady payments in retirement. Pensions are less popular than contribution plans.
Self-Employed Retirement Plans
The self-employed or small business owners can open their own type of retirement accounts. The self-employed can open a SEP (Self-Employed IRA). The small business owner can open a SIMPLE (Savings Incentive Match Plan for Employees) IRA. SEP’s and SIMPLE’s also have unique benefits and risks.
Benefits of a Retirement Account
Dedicated Way to Save
A retirement account aims to give you a dedicated way to save for your future. Employer retirement accounts usually rely on automatic contributions from your paycheck. This gives you an easy way to save for retirement.
Professional Management
Many retirement accounts are professionally managed by a plan administrator. You usually choose your investments, and a professional manages the plan. In turn, the investment company charges a fee. Your Human Resources department or Financial Advisor can help you understand the fees.
Tax Advantages
Many retirement accounts offer tax benefits. These benefits may include tax-deferred growth or tax-free withdrawals in retirement. But the Internal Revenue Service (IRS) also imposes rules on retirement accounts. These rules may include early withdrawal penalties, contribution limits, and required minimum distributions.
Matching Contributions
An employer retirement account may match a portion of your contribution. This aims to increase your retirement savings without extra money from your paycheck.
Investment Choices
Retirement accounts are investments that offer different asset class choices. These may include stocks, bonds, and mutual funds. But investments carry risk. Consider speaking with your Human Resources department or Financial Advisor to understand the benefits and risks.
Tips to Help Manage Your Retirement Account
Understanding retirement accounts can be overwhelming. There are many details to learn to help ensure you choose a retirement account aligned with your budget and goals. Let’s explore tips to help manage your retirement account.
Plan Your Contributions
If your employer offers matching, consider contributing the most you can afford up to the maximum limit. This is free money to you that can help you save more for your retirement. Also, consider regular contributions. The goal is to help your investments grow over time.
Consider Diversification
When choosing your investments, consider diversification. Diversification is spreading your investments over different asset classes like stocks, bonds, and mutual funds. Diversification aims to help lower your risk and potentially increase your returns.
Regular Review and Rebalance
The stock market and economy constantly change. Reviewing your investments regularly can help keep you on target with your long-term goals. Also, your investment portfolio may become unbalanced at times. This means your investments no longer align with your goals. Rebalancing your portfolio can help you keep a suitable mix of investments. A financial professional can help you with rebalancing your account.
Understand Investing
A retirement account involves investing. And investing carries benefits and risks. Risk tolerance is knowing how much money you are willing to lose. You can help understand your risk tolerance by learning all you can about investing. Consider expanding your financial literacy to help you understand and make sound investment choices.
Conclusion
Planning for retirement is a journey that needs careful consideration. Choosing a retirement account depends on your financial budget and goals. By understanding the different types of accounts, their benefits and risks, and how to manage them, you can take significant steps toward a comfortable retirement.
Want to learn if you are ready for retirement? Take the Retirement Readiness Assessment.
Ready to take control of your finances? Contact me.
Disclosure:
The use of asset allocation or diversification does not assure a profit or guarantee against a loss.
Georgene Collins, RICP®, RN, PhD, MBA is a registered nurse turned Financial Advisor at Airey Financial Group. Georgene helps other nurses take control of their finances and prepare for retirement. Georgene began her career with Airey Financial Group in 2017 after retiring from 30 years in healthcare.
Georgene holds the Retirement Income Certified Professional (RICP®) designation from The American College of Financial Services. She holds health and life insurance licenses and a long-term care certificate in Indiana and Illinois. Georgene is a Registered Representative and Investment Advisor Representative and has earned the FINRA Series 63 and 65 registrations.
