Many young people think “retirement age” is so far in the future, they shouldn’t worry about saving now… after all, there is plenty of time, right? What they don’t always see is the value that compound interest has in their lives today. TIME is the magic that makes interest compound and grow, so the sooner you start, the more you will have when you’re ready to retire! And the more you have, the sooner you are financially independent.

We like to suggest setting back 10% of your gross income towards your retirement right away. Many employers today offer a voluntary retirement plan (401(k) or similar) with an “employer match” that allows you to reduce your taxable income and save money for your future. That means, if you contribute a part of your income toward your plan, your employer will then add money to your retirement account every month as well. Everyone likes free money! We would encourage contributing up to the amount your employer matches. Some plans provide the employee the option of contributing to the “Traditional” or income tax deductible portion of their plan as well as making available the “Roth” or after tax option. If one is in the 15% income tax bracket, we would have you consider the Roth option. If you are in the 25% tax bracket we will likely encourage the “Traditional” option.

Once you are contributing to the maximum on which your employer matches, we would then likely encourage establishing a Roth IRA. A Roth IRA has the advantage of being able to withdraw all of your contributions prior to age 59.5 without penalty or tax.