According to a recent “Retirement Trends” survey by Fidelity Investments, 96 percent of Americans saving for retirement don’t know the current contribution limit for an individual retirement account, with some guessing as low as $1,000. The reality is that for the tax year 2005, IRA contribution limits increased to $4,000 — up from $3,000 in 2004. Compare that to 2021, where contribution limits are $6,000 or those under 50, and for those over, they are allowed an additional $1,000 in catch-up contributions.
When it comes to knowing the facts about retirement, misperceptions can lead to missed opportunities. Today’s workers will face rising health care costs when they retire, as well as declining pension benefits and a higher cost of living. That’s why it’s important to save as much as possible and as early as possible in tax-advantaged accounts like IRAs. If you have children or grandchildren and own your own business or have a job, get them to open a ROTH IRA and they will enjoy decades of growth growing in a tax-deferred environment and the total gains are tax-free well when you withdraw the funds.
Knowing the facts can help dispel common myths that may keep some investors from making the smart move of saving in an IRA.
* Myth No. 1: My 401(k) savings should be enough.
According to the Retirement Trends survey, nearly one-third of Americans in their prime savings years have not yet opened an IRA account think their 401(k) savings will be sufficient for retirement. However, Fidelity estimates that retirees will need approximately 80 percent to 100 percent of their pre-retirement income to live comfortably. Using an IRA now to supplement workplace programs can help investors make sure their savings will continue to grow and last throughout retirement.
* Myth No. 2: I have to come up with thousands of dollars all at once to open an IRA.
For the one in four non-IRA owners surveyed who say they can’t afford the initial investment required to open an IRA, opportunities to save even more for retirement may be daunting. But getting started without an initial lump sum is as easy as setting up automatic monthly payments through most online brokerage accounts and most mutual funds families. Charles Schwab has IRA accounts that allow you to purchase mutual funds with thousands to choose from, or you can buy partial slices of S&P 500 companies through their slices program. All with no fees! For more, visit https://www.schwab.com/.
* Myth No. 3: IRAs are for older people with lots of money to save.
The truth is that younger investors could benefit the most by saving early because they have time on their side. According to the Retirement Trends survey, nearly two-thirds of young adults have started to save for retirement before age 30. That’s good news; starting to save as early as possible is one of the best ways to prepare for the future.
If your kids have a summer job, assist them in opening and funding, preferably a ROTH IRA as noted above, and they can have over four decades for their funds to grow into a significant nest egg for them. Those who own their own business can hire their child to work for them and expense the business and earned income for the child, assisting both of you in the process. I heard a great idea if you have children that are not old enough to work, hire them as a model for online or print ads, and then they have earned income that you can put in a ROTH IRA for them, and now you may see over five decades of growth! For example, for someone with a two-year-old that you pay $6,000 for two years put in an IRA that earned 9% for 56 years, they will have roughly $1,496,000. Imagine that?
If you live in or near Nashville, Tennessee, or anywhere in the US, please contact me directly for any assistance you may need. If you do not wish to reach out to me, contact another fee-only fiduciary Registered Financial Consultant. What are you waiting for? Contact me today, https://kgmeyerpc.com/contact/, and get started investing in your future!
