Whether you are in your 20s and are just beginning to think about retirement or in your 50s and are panicked about retirement, there are several general questions you should ask yourself before you start to set up a budget for a retirement plan. Here are a few of them:
- Does your current employer provide a retirement plan? If so, what type?
Some companies, particularly small businesses, do not always provide retirement plans. If not, then you need to set one up on your own. Check into contributing to an Individual Retirement Account (IRA) or a Roth IRA to see which would benefit you most. Suggest to your employer that offering a retirement plan would be a good group benefit for employees.
- Are you eligible to participate in your employer’s retirement plan?
Depending on the job you have and the rules of the retirement plan, you may or may not be eligible to contribute to the retirement plan. If you can, contribute as much as you can afford up to the maximum ceiling. If you can’t, either set up a retirement plan on your own or consider changing to a job that has a retirement plan to which you can contribute.
- What happens to your retirement plan if you leave your employer for another job?
Some retirement plans can be left with the company to earn dividends and interest after you leave. Another alternative is to roll that money into another retirement investment over which you have more control after you leave. You can always cash it in. That is not a recommended alternative since it will cost you 10% in taxes and another 10% in penalties not to mention your retirement savings.
- When do you become vested in your company’s retirement plan?
Vesting is the right to receive the benefits from your retirement plan. It usually is defined by the numbers of years you work for the employer. Find out how many years you have to work to become vested.
- Does your company provide a retirement or investment counselor?
Talk to the retirement counselor at your company. If your company offers a 401(k), research, with your counselor, the types of investments you want to allocate your money to. The general rule is to take on more risk if you are young, reducing that risk as you get older. If you set up an IRA on your own, you may want to hire a financial planner to help you.
- Take three months and develop a budget. Write down everything you spend and all income you receive. Find ways to cut your budget so you can put money in your retirement account, whether at work or one you start yourself. After three months, start contributing that money on a regular basis, even if it is only a few dollars a month.
Follow these initial tips and you’ll be off to the right start with your plan to budget for your retirement years.
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