Five Things Recent Grads Should Know About Saving for Retirement

Your income may be tight and your expenses plentiful if you’ve recently graduated from college and begun working. Between paying your living expenses and perhaps making student loan payments, there may not be much cash left over to save. – And yet this may be exactly the right time to begin saving for retirement, even if it is only small amounts at first.

What’s the rush? By starting now, you can maximize the time you have to save and can perhaps afford to invest more aggressively than would be prudent later on.

Here are some tips to help get you started on the path to a financially secure retirement.

1. Time is your biggest asset.

Although your discretionary income may be limited when you first begin working, you are rich in time. Make the most of it by beginning to invest now in order to maximize the time your investment earnings have to potentially compound (that is generate earnings of their own), the less income you may need to contribute over the years to help reach your retirement savings goal.

2. Use your workplace retirement plan.

Not only are workplace retirement plans very convenience, they offer tax advantages that can help your savings potentially grow fast than they would in a regular savings or investment account. And with some plans, your employer may match a portion of the money you can contribute.

3. Consider a Roth retirement account.

A Roth 401(k) or Roth IRA can be a smart choice for young people who expect their incomes and income tax rates to increase significantly over the years. That’s because you pay taxes on your money before it enters a Roth account, when your tax rate may be relatively low, and you can make tax-free withdrawals in retirement, when your tax rate may be higher.

4. Stocks offer the most growth potential.

While investing in stocks is riskier than investing in bonds and cash equivalents, stocks offer the greatest potential for growth and have historically provided higher returns than bonds and cash over the long term. With decades to go before retirement, including stocks in your retirement account may be a smart move.

5. Avoid dipping into your retirement savings.

Withdrawals from a retirement plan or an IRA before age 59 ½ are generally subject to a 10% tax penalty, in addition to any income taxes you may owe on the withdrawal. So rather than using your retirement savings for emergencies, consider funding a regular account that you can draw on in a pinch without a big tax hit. And when changing jobs, consider keeping your savings in a tax-favored retirement account rather than cashing them out.

At Copper Leaf Financial, we assist people at all stages in life to develop a plan that acts as a road map - and evolves over time. It’s a plan that reflects changes in your life and your goals. We can alleviate that sinking and overwhelming feeling that keeps you up at night trying to decide where and how to invest for your future. A proper plan enables you to invest the same way we do: broad diversification, low costs and appropriate levels of risk. We prize evidence over emotion and we value academic and market research over fluctuating opinions. With offices in Rutland and Williston Vermont, you can contact us at 802.878.2731 for more information.

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