Featured Experts
Steven-Sass
Steven Sass Center for Retirement Research, Boston College View bio
Christian-E-Weller
Christian E. Weller Center for American Progress View bio
Brian-H-Graff
Brian H. Graff American Retirement Association View bio

This guide was written by

MoneyGeek Staff

It’s never too late to start saving. Whether retirement is far in the distance or on your doorstep, what’s important is to figure out what you’ll need and start working toward that goal. Use MoneyGeeks Retirement Expenses Calculator to determine how much you need to save, then put the power of compound interest to work for you. Our Compound Interest Time Machine (below) shows that the amazing results of putting even a modest amount into savings early on.

The Compound Interest Time Machine

Jeanie puts $12,000 into savings at age 20. Her interest is compounded annually at a rate of 5.2 percent. Without drawing from or adding to the account, she’ll have $117,459.88 by age 65.

But what if that never happened? Let’s review additional scenarios.

Let’s say Jeanie is 30. She puts the same principal into savings at the same 5.2 percent interest rate. Without drawing from or adding to the account, she’ll have $70,750.93 at age 65.

Jeanie is 40 and decides to put the same principal into savings under the same conditions listed above. By age 65, she will have saved $42,616.20.

At 50, if she places aside the same $12,000 at 5.2 percent, her savings at age 65 is $25,669.50.

7 Steps to Earning a Comfortable Retirement Income

1

Develop a Social Security strategy

According to the Social Security Administration, in 2015 Social Security was an important source of income for most elderly Americans. Yet with increasing lifespans and more expensive cost-of-living, the monthly benefits from Social Security may not be enough to rely on as the sole income stream in retirement. Social Security should be viewed as a piece of the retirement puzzle and requires a strategic approach when it comes to deciding when to collect benefits.

The amount of Social Security benefits you are eligible to collect depends on when you choose to begin withdrawals relative to your “full” retirement age as set by the Social Security Administration. This full retirement age date varies based on when you were born. For example, for individuals born between 1943 and 1954, full retirement age is 66. Collect before age 66 and benefits are reduced. For each year beyond the full retirement age, retirees will see an 8 percent annual increase on their Social Security until they reach the age of 70. As general counsel, wait to collect benefits if you can afford to.

2

Take Advantage of an Employer-Sponsored Retirement Savings Account

Fully guaranteed pensions are going the way of the dinosaur: extinct. That means it is up to the individual worker to save for retirement. If your company sponsors a retirement savings account, take advantage of it. Beyond the tax-free savings, your employer may also match a certain percentage of your contributions.

Americans who are full-time employees at large companies likely have access to a defined contribution retirement plan, such as a 401(k). But the 401(k) is not the only game in town. Employees of public schools, certain nonprofits and some ministers, for example, may be eligible for a 403(b) retirement plan; state and local government employees may see a 457 savings plan; federal government employees are eligible for the Thrift Savings Plan. The tax advantages of an employer-sponsored plan can add up to big bucks over the course of your career.

3

Open a Private Retirement Account

Aside from contributing to an employer-sponsored retirement savings plan if available, you should also consider opening a private retirement account to build your nest egg. Popular tax-advantaged accounts outside of employer-sponsored plans are the Roth IRA and the traditional IRA. With a Roth IRA, you contribute after-tax money. However, after age 59 ½ account withdrawals—and gains—are tax-free. In contrast, with a traditional IRA, you contribute pre-tax money, but you’re on the hook for income taxes when you withdraw the funds.

If you’re choosing between a traditional and a Roth IRA, consider your tax bracket and future earnings potential. Individuals earning more than $71,000 (or $118,000 for married couples filing jointly) are ineligible for traditional IRA contributions. Higher income earners may want to consider a Roth IRA, although there are regulations for Roth eligibility as well regarding earned income for single and married couples filing jointly (a cap of $132,000 for single and $194,000 for a married couple). With a Roth IRA, you forgo an upfront tax deduction, but your gains will be tax-free beginning at age 59 ½. If you expect your earning potential to grow over time (and therefore your tax bracket), a Roth IRA may be the way to go.

One thing to know about both types of IRA is that there are designated annual contribution limits. For the 2016 tax year, $5,500 is the maximum contribution amount for individuals under 50 and $6,500 for those 50 or older: this is the maximum for an individual’s traditional IRA account, an individual’s Roth IRA account and for an individual’s combination of IRA accounts.

Anyone can open a Roth IRA account and anyone under 70 ½ can open a traditional IRA through a bank, mutual fund company, or brokerage firm. IRAs offer a wide variety of investment choices, such as bonds, stocks and mutual funds. You may also want to consider special IRAs, including the Simple IRA or the SEP IRA, which are for small business employees and the self-employed, respectively.

4

Invest Your Savings

Even seasoned investors get intimidated by stock market fluctuations every now and again. And the novice? Some would rather go to the dentist than deal with retirement investing.

Gun-shy investors can choose funds that take the guesswork out of investing. Index and lifecycle funds are two examples. An index fund is a certain breed of mutual fund; the investor purchases shares of a portfolio that contains the same securities (in the same approximate proportions) as a certain index, such as Standard and Poor’s 500 Index. Index funds are a low maintenance way to participate in the market; the portfolio is not so volatile that an account manager has to hover over its progress, meaning the management fees you pay as an investor may not be as high as with mutual funds with higher turnover. Remain vigilant, though: although index funds usually have lower fees, always compare between funds to make certain your costs are within an appropriate range. In much the same way, lifecycle funds are comprised of a market basket of stocks, of bonds, or both. These lifecycle funds usually have a fund manager who uses his or her expertise to change the allocation of assets such that more of the investments become more conservative as retirement approaches.

At the end of the day, getting your retirement money into the financial markets is the important step. If investment choices are keeping you up at night or you are too intimidated to take that first step, get some assistance. Financial planners or even a trusted family member or friend who’s savvy in these matters can help you craft a realistic retirement savings plan that meets your goals.

5

Have a Plan for Health Costs

Health care is one of the biggest retirement costs individuals face. By most accounts, a healthy couple is projected to pay about $250,000 on healthcare during retirement. That doesn’t take into account any unexpected illnesses and injuries that require long-term care, which is a real possibility. According to U.S. Department of Health and Human Services, 70 percent of people turning 65 will need some form of long term care. Health care costs are also expected to increase by a whopping 5.8 percent each year through 2024, notes the Centers for Medicare and Medicaid Services—this means that health costs are growing much more quickly than other expenses, such as groceries, which currently increase in cost every year, too, just at a slower rate. All this is to say—you should have a plan for these retirement expenses.

Two avenues for savings include a long-term care insurance policy and a Health Savings Account (HSA). Individuals should either lock in a long-term insurance plan as soon as possible or save for long-term care costs as part of their private retirement savings. (Our MoneyGeek.com guide to paying for long-term care explains more detail.) A Health Savings Account (HSA) is available to individuals with a high deductible health insurance plan who are not currently enrolled in Medicare. With an HSA, if you deposit the money yourself it is tax deductible, and if the money is deducted from payroll is placed in the account and considered pre-tax. Withdrawals for qualified medical expenses are not taxed. HSA funds roll over yearly, meaning it’s not use-it-or-lose-it like money in a Flexible Savings Account.

6

Homeowners Should Build Equity

A home can be a good source of income in retirement. When retirement approaches, home equity presents multiple options. A home equity loan or home equity line of credit (also called a second mortgage) can be used for emergency situations or to escape high interest debts. Homeowners may also rent their house or downsize to free up additional capital, or in some circumstances, convert their equity to cash through a reverse mortgage. To do so, homeowners need to stay on top of their mortgage payments, with additional payments serving as a smart retirement savings strategy.

7

Compare Interest Rates

The 2008 recession taught millions of people that holding all of their retirement savings in investments is a risky proposition. During the 2008-2009 downturn, trillions

The New York Times reports there are conflicting studies on the total, ranging from $6 trillion to $14 trillion. CNN reports $16.4 trillion was lost. After subsequent gains, the net loss is $7.7 trillion according to CNN.

in US household wealth evaporated alongside many banks and companies. As retirement approaches, becoming more risk-averse and moving money to safer investment vehicles, such as certificates of deposit (CD), money market deposit accounts and savings accounts. These are attractive choices because the funds are insured and backed by the FDIC. Liquid investments provide a decent return and greater access to cash.

Saving vs Investing

Saving and investing are complementary, but not identical ideas. Consult the chart below to understand some fundamental differences between the two.

Saving Investing
Examples? Savings accounts; Certificates of Deposit (CD); Money Market Accounts (MMA) Stocks; Bonds; Mutual funds; Annuities
Used for? Meeting shorter-term goals some months or several years out i.e. vacations, holiday shopping, new computer, new car Achieving longer term goals like buying a house, kids’ college funds, long-term care
Profit potential? Low, although accounts of this type do bear interest over time in varying degrees and are more profitable than a non-interest bearing checking account. Medium-High. The object here is to grow your wealth and yield high returns.
Risk potential? Low. Savings accounts, CDs and MMAs are FDIC-insured. Medium-High. The level of risk is always relative to the investment, but as these types of accounts will make you aware, they are not FDIC-insured and cannot provide a bank guarantee.
Accessibility? Easy. Savings vehicles of this type tend to be more liquid, meaning the funds in the accounts are relatively easy to access. Difficult. Investing vehicles tend to be illiquid: withdrawing money is more challenging and you may face early withdrawal fees.
Where do I get it? At a bank At a bank, brokerage firm, mutal fund company

3 Takeaways for Portfolio-Building

  • Save and invest

    There is purpose to saving with modest risk and making investments with greater risk; the trick is to do in an intentional and informed manner.

  • Start as soon as possible and let compound interest do the work

    As we saw in the example above, the difference between investing at age 20 versus age 50 is $91,790.38. Why? The reason is compound interest, which is the interest paid on both the original amount of money and on the interest it has already earned. For example, at the end of year one, Jeanie earns $126.24 in interest ($12,000*1.052%). The interest compounded at the end of her second year, however, will compound her interest on top of her total savings ($12,126.24*1.052%), so that by the end of year two her savings are $12,253.81.

  • Better late than never

    Delayed putting money away? Don’t despair. While the rule of thumb is to start saving as early as possible, this exercise also demonstrates that saving at any age is better than not saving. After all, with compound interest, after 15 years Jeanie’s totals savings ($25,669.5) is still more than double her original amount ($12,000) pre-investment.

Smart Spending in Retirement

The average person typically needs 70 percent of their annual pre-retirement income for each year of retirement. Some financial planners even advise 80 percent depending on retirement plans. However, many retirees assume they will spend less when they stop working but forget to account for travel or extracurricular activities. The good news: There are plenty of ways retirees can save on their retirement expenditures.

What will I spend my money on?

Retirement Expenses Calculator Enter the estimated monthly cost of each expense (in today's dollars) to get an idea of your annual expenses in retirement.
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Monthly Amount You Expect to Spend in Retirement

Enter the amount you expect to spend in today's dollars.

Annual Expense

All categories except for housing and health have an estimated inflation rate of 3.18% based on long-term US inflation data (1913-2015). Housing and health inflation rates (2.2% and 3.5%, respectively) have been calibrated from the last 10 years' average (2006-2015) Consumer Price Index for US Urban Consumers.

Your Totals: $0.00 $0.00
Expense
Everyday Living (Necessities)
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Housing
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Unexpected Costs
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How can I best spend my money?

Everyone’s picture of retirement is unique, but here are five suggestions for cutting costs even as you live it up.

Five Suggestions for Cutting Costs

  • Downsize

    Downsize your home in favor of a smaller home or condo. Selling your home for a smaller one can not only decrease monthly housing costs but also the expenses associated with maintaining and running a larger home. Homeowner’s insurance and property taxes generally decrease when you move into a smaller home.

  • Relocate

    Sometimes downsizing into a smaller home isn’t enough because the state or town is too expensive. A move to a completely different state can free up a lot of cash if the overall cost of living is cheaper, both from a housing and living perspective. Property taxes alone could save thousands.

  • Rethink Your Cars

    Multiple cars are the norm for many households, but saying goodbye to an extra vehicle can free up cash. If one of the cars is sitting idle in the garage, then giving it up is an easy cost saver.

  • Travel in the Off-Season

    Travel is usually on the top of the list for retirees, but doing that frequently is expensive. Deals abound during off-peak travel periods. Avoid times when schools are closed and families are traveling or during other high peak periods to save on airplane tickets, hotels, and rental cars. Choosing to fly on off days of the week like Tuesdays, Wednesday and Saturday can also save a bundle.

  • Use Senior Discounts

    Getting old isn’t all bad, particularly after you reach 50. Senior discounts are available on everything from groceries to move tickets, clothes to insurance. An AARP card only costs $16 a year, but provides a variety of discounts that AARP has negotiated for its members. Some retailers don’t advertise senior discounts, so it makes sense to always ask.

Roundtable Q&A:

Our experts Steven Sass from the Center for Retirement Research at Boston College, Christian E. Weller, PhD from the Center for American Progress and Brian Graff of the American Retirement Association talked to us about taking the guess work out of creating a well-rounded retirement portfolio even if you’re just starting out.

What should a comfortable retirement look like?

Steven-Sass Saas The basic notion of a financially comfortable retirement is a retirement that maintains your pre-retirement standard of living.  To do that, retirees generally need retirement incomes between 70 percent and 80 percent of their pre-retirement pre-tax incomes – as they don’t need to pay payroll taxes; don’t need to save for retirement; have paid off the mortgage, or will soon (if they are homeowners); are typically in a lower income tax bracket; but have higher medical expenses, and will likely need some form of care at older ages.

Christian-E-Weller Weller A comfortable retirement is one that gives people a lot of economic control over their lives as they age. They don’t have to rely on family, friends, government assistance and charities to make ends meet. And, they get to live the lifestyle that they want, which generally means that people get to volunteer, work part-time in a new job and even start their own business. It also means that they have enough resources for health care and, more importantly, long-term care needs as they get older.

Brian-H-Graff Graff People need to start thinking retirement early on. How much they are going to need to live comfortably in retirement is not the same level of income when they are raising kids or paying a mortgage. A lot of experts say you need replacement income of around 60 percent to 70 percent of your working income.

What specific advice would you give to someone who opened a 401(k) or other employer-based retirement savings account on the later side (40s, 50s)?

Steven-Sass Saas First, plan on retiring later. At this stage of the game, it’s by far the most effective way for most folks to secure an adequate retirement income. Second, move to a sustainable standard of living, which will a) reduce the income you’ll need to maintain your standard of living in retirement and b) increase how much you can save.  And, as you approach retirement, (a) becomes more important than (b). Downsize your house as soon as possible, as it increases how much you can save by cutting your housing expenses and freeing up savings now stored in your home. Third, use a reliable retirement calculator.

Christian-E-Weller Weller People need to consider a few aspects when saving with a 401(k) plan, but I’d say the most relevant to take into account is whether the employer makes any contributions to it. If so, not contributing would leave money on the table. This is especially true for people in their 50s, who can soon take the money out without paying a penalty. How much somebody should save in a 401(k) plan, especially at older ages, depends on several factors such as other savings, current expenses and current tax rates. 

Brian-H-Graff Graff For folks getting a late start they ought to take advantage of catch-up contributions that Congress enacted in 2001. It allows people to save a little extra in their 401 (K) once they reach age 50.

How should someone decide between an IRA and Roth IRA?

Steven-Sass Saas It basically depends on whether your tax rate will be higher or lower when you pull the funds out than when you put it in. If higher, use the Roth; if lower, use the traditional IRA. 

Christian-E-Weller Weller In an ideal world, a person would know their tax rate today and in retirement and they could figure out which of the two options is better for them, as long as they also know when they will retire and how long they will live. But that is a lot of stuff to know. So, most people will have to make some educated guesses about these factors, specifically about future incomes, taxes, age at which one retires and their own life expectancy. Guessing about these critical factors can then lead people to make mistakes. One way of reducing the effect of such mistakes is to invest both in a traditional IRA and a Roth IRA. 

What advice would you give to young men and women who are just starting to build their savings?

Steven-Sass Saas Get an overall saving-and-debt-repayment strategy: 

  • One : decide where you want to be in 10 years.
  • Two : set your targets. Pay down credit card debts and student loans, save for an emergency fund, a house down payment, college tuition, and retirement.
  • Three 3 : figure out how much you need to save consistently to be where you want to be in 10 years and then shift your savings to other objectives as higher priorities are met (e.g. paying down high-interest credit card debt). Follow five basic rules to get where you want to go:
    Follow five basic rules to get where you want to go:
  • Rule 1 : Save! You’ll have more tomorrow if you save more today.
  • Rule 2 : Pay off high-interest debt.
  • Rule 3 : Use the 401(k). It is the best way to save for retirement—it’s automatic, saves on taxes, and the employer match is free money.
  • Rule 4 : Have a plan. Know where you want to be in 10 years and make a plan to get there.
  • Rule 5 : Keep saving. If you reach a goal or pay off a debt, use the freed up money to pay off another debt or reach a new goal.

Christian-E-Weller Weller My main concern, beyond getting people to save, is that often people do not consider the risks involved in saving. Yes, putting money aside for the future comes with risks. But, there are ways to minimize those risks. One key aspect is to not put all of your eggs in one basket. That is true for money in a retirement account, which should be spread between different investments and not put all into one stock or bond, for instance. It is also true for all investments, so that people should not put all of their money into their house, which can be a very risky investment, but rather put a little money aside in an emergency or retirement fund. Another key aspect for young people is to be mindful of how much debt they have and how much that debt costs them.

Brian-H-Graff Graff Putting as much as you can in a 401 (K) is a good deal. You’re getting a tax deduction, you’re probably getting a match from your employer and that money is earning on a tax deferred basis. That’s the first place you go. The vast majority of Americans have a hard time saving the maximum in their 401(K) which is $18,000.

What are some of the common pitfalls people face when saving for retirement?

Steven-Sass Saas Assuming the saving rate needed to get the employer match is what they need to save and focusing too much on investments. You should attend to your investments—that fees are reasonable (i.e., low) and that you’re not doing something stupid. And don’t pay attention to how much you have more than once a year. There’s really nothing useful you can do with that information aside from adjusting your saving rate and target retirement age.

Christian-E-Weller Weller I’d say there are two types of pitfalls. First, people may not save enough. They may, for instance, ignore tax credits that they could qualify for or they fail to take advantage of their employer’s contributions to a retirement plan. The second pitfall is that people take on too much risk — they invest all of their money in their employer’s stock, they save all of their money in their house, they take on a lot of high-cost debt. Investments need to be spread out — diversified — and debt needs to be manageable.

Brian-H-Graff Graff Not sticking with it. You’ve got to stick with it and think of it as a bill you have to pay just like your cell phone bill. You also want to try an avoid loans against your plan. If you switch jobs, then you have to pay the tax on the amount you owe on the outstanding loans. Remember, you are in it for the long term. Don’t panic and stick with it. The people who stuck with the market did great after the last adjustment, so it’s important to stick with your plan. Retirement is up to you. You have to make those contributions and make them regularly so you can achieve the retirement you want.

Glossary

401(k) plan

A company sponsored retirement savings plan that allows employees to make contributions on a pre-tax basis and lowers the overall income they have to pay taxes on. Some employers offer a matching program in which they will match a portion of the amount employees are saving.

403(b) plan

Also called a tax sheltered annuity, a 403(b) is a retirement savings plan available to employees of public schools, tax exempt organizations and some ministers. Employees are able to invest in either mutual funds or annuities, something not common with traditional 401(k) plans, although the employees may be limited as to which type of account to maintain depending on the employer’s choice of financial institution.

457 plan

A defined contribution plan offered by employers to state and local government employees, as well as employees of tax-exempt governments and tax-exempt employers like non-profits. Employees defer compensation to make contributions to this account. As with 401(k) plans, these earnings grow tax-free and contributions are only taxed when the assets are withdrawn. 457 plans, however, are not governed by the Employee Retirement Income Security Act (ERISA), so employees who make premature withdrawals (before age 59 ½) are not penalized with a 10% additional tax penalty like employees with 401(k)s are.

Annuity

A financial product sold by insurance companies that enables investors to make contributions and, in return, get a regular stream of income each month for a specified period of years. The annuity can be funded over time or with one lump sum. Investors can get either a fixed rate or a variable rate of return.

Bond

Used by entities (companies, governments and municipalities) to raise money, investors in essence loan the entity money for a set period of time and get paid a fixed or variable interest rate for their loan. Bonds are an investment vehicle and can function as part of a diversified retirement portfolio.

Catch-up contributions

Allows people over the age of 50 to make extra contributions to their 401(k) or IRA. The Internal Revenue Service (IRS) raises the annual limit to the amount you can contribute for older savers.

Certificate of Deposit (CD)

A savings certificate that pays a fixed interest and has a specified maturity date. CDs are issued by banks, are FDIC-insured and can mature in months or years.

Compound interest

Interest refers to the money added to a principal amount (of a deposit or loan, for example) at a given rate over time. Compounding refers to the addition of that interest to the principal amount; thus, for each time after the first time interest is calculated, the principal effectively grows.

Direct rollover

The process of moving money in one retirement savings plan into another—for instance, moving money from one employer-sponsored 401(k) to another employer’s 401(k) plan when you switch jobs. Because you aren’t withdrawing money, you don’t have to pay any taxes on the transfer.

Diversification

The process of spreading your investments across asset types so you don’t have all your eggs in one basket. A common way to diversify is to spread your investments between stocks and bonds.

Estate planning

The process of preparing for your death by deciding how your assets will be handled and who they will go to when you pass. There are many components to consider with estate planning, but certainly by taking the opportunity to plan estate holders can essay to insure that their beneficiaries, whether family or charitable organizations, will be supported.

Exchange-traded fund (ETF)

An ETF is a security that tracks an index like the S&P 500, bonds or a basket of assets. An ETF trades like a stock on the stock exchange and investors can buy and sell during market hours. With each sale or purchase, however, investors are charged a commission, so the fees can add up the more actively you trade.

Health Savings Account (HSA)

An account to help save for medical expenses, available to individuals not currently enrolled in Medicare and who have a high-deductible health plan. For individuals whose contributions are deducted from payroll, the money is considered pre-tax. For individuals who deposit money themselves, the contributions are tax deductible. The money in the account grows tax-free and withdrawals for qualified medical expenses are also not taxed. Unlike a Flexible Spending Account, funds in an HSA are not assigned to a particular calendar year, so unused funds can be “rolled over” for future expenses.

Index fund

A type of mutual fund with a portfolio constructed to track a market index like the Dow Industrial Average or the Standard & Poor’s 500. These tend to be passive, low cost investments which make them ideal for investors who might not want to helicopter and who prefer to check in every six months to a year on their portfolios. Costs may be lower with an index fund due to its low maintenance, but it is advisable to compare fees between different funds.

IRA

An Individual Retirement Account that lets you invest pre-tax income up to an IRS-specified annual amount. In a traditional IRA, the money grows tax-deferred, which means you don’t pay taxes until the money is withdrawn after the age of 59 ½.

Lifecycle fund

A diversified mutual fund whose asset allocation automatically adjusts to become more conservative as the investor approaches retirement.

Liquid/Illiquid investment

Liquid investments are those that you can easily access as cash. One of the most liquid investments is a savings account. An illiquid investment is a security or asset that you can’t easily sell for cash, or can’t easily sell without seeing a loss in the value of the investment or asset.

Money market (deposit) account (MMA or MMDA)

Similar to a savings account, these accounts typically call for a higher account balance but account holders typically receive a higher than a regular savings account provides. Money market deposit accounts are FDIC insured.

Mutual fund

A collection of stocks or bonds that trade under one symbol. There are all sorts of mutual funds, including ones made up of different stock types and bonds of different levels of risk. There are actively managed funds that use a money manager to choose the investments and passive ones that track a specific index.

Pension

With this type of plan an employer makes contributions that are set aside for employees. The funds are pooled and invested on behalf of the employees, who get the benefits once they retire.

Portfolio

A collection of assets held by investors that can encompass stocks, bonds or savings accounts.

Roth 401(k)

A company sponsored retirement savings account that lets employees withdraw money after the age of 59 1/2 tax-free, including any gains. Unlike a Roth IRA there is no income limitation in terms of who can open one up.

Roth IRA

Similar to an IRA a Roth IRA lets you make contributions up to a certain limit but savers don’t get a tax write-off. Once you hit 59 ½ you can withdraw the money tax free.

Savings account

Cash saved and housed at a bank. It is one of the safest places to keep your money because it is FDIC insured but the yield you get from a savings account tends to be low. It’s also one of the most liquid accounts holders can have.

SEP IRA

Self-employed business owners may opt to set up a Simplified Employee Pension plan for their employees, and for themselves if they choose. The employer receives a tax deduction for the amount contributed to SEP IRA accounts. These accounts have higher annual contribution limits than standard IRA accounts do.

Simple IRA

A retirement savings plan open to small business employees and self-employed individuals. With a Simple IRA, employees can make pre-tax contributions as with a standard IRA. The tax on the money is deferred until the employee draws down on it.

Social Security

A Federal government run program that pays people money when they are unable to work because of their age or health. U.S. employees pay into Social Security during their working years and once they stop, they collect monthly benefits.

Stock

A share in a publicly traded company or corporation. When you have a share of a company you are one of the many owners.

Thrift Savings Plan

A plan available to current and retired federal civil service employees and members of the uniformed services and similar to a 401(k) in that contributions are automatically deducted from their paycheck. Any contributions into the plan are not taxed until they are withdrawn.

Will

A legally enforceable document that lays out how the person wants his or her assets to be distributed after death. By this means, if you have minor children who need to be cared for, you are able to nominate a guardian. It also dictates what happens if you have minor children that need to be cared for.

Resources

Updated: July 27, 2017