Importance of saving for retirement early

Importance of saving for retirement early

There are so many reasons why it is important to start saving for retirement in good time. The benefits are first hand and will benefit the person who is retiring as well as give his family an easy time all through the transition. In most cases, the transition is normally the hard part with early preparation, everything will be okay. The importance includes:

  • You will not have to rely on the welfare system to finance your retirement years

There’s nothing wrong with using welfare (officially, Temporary Assistance to Needy Families) for aid if you have to. It is your right to do so, especially when you have spent all of your working life paying into the system. The issue is, do you really want to be in the position where that is your only choice during your retirement years? You need to consider how that will affect your retirement lifestyle.

  • You will not have to live with your children just because you cannot afford to manage on your own

Having to live with your kids because you are not able to financially manage yourself is not how you would want to spend your retirement days. It does not matter whether your children feel you are a welcomed responsibility or a burden they simply cannot afford. Being financially dependent not only means depending on someone else to cover your living expenses, but it may also mean giving up your freedom and your independence which is often very uncomfortable.

  • Saving in a tax-deferred account reduces your income tax

Making deductiblecontributions to a traditionalIRA reducesthe income that you have left becauseyou must take funds from your savings in order to make that contribution. Makingsalary deferral contributions to a 401(k)plan on a pre-tax basis reduces the amount of take-homepay youreceive. The net effect is however less than the sum of the amount youcontribute to these plans because the amount by which your income is reduced isless than the amount you contribute.

  • Saving in a tax-deferred account produces a compound effect on your return on investment

Adding your savings to a regular savings account makes the earnings that accrue on those amounts to be taxed in the year those amounts are earned. The overall effect is that it reduces the amount you have available to reinvest by the amount of taxes you must pay of these amounts.