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Retirement Plans – Why You Should Have One

Emily Dawson
By: Emily Dawson
Sep 18, 2020 • 7 min read

Retirement Plans – Why You Should Have One.

“Retirement? I’m so young! Why should I be thinking about retirement?” You may be asking yourself this question upon stumbling across this post. Since you are young and able, it is wise to start planning for your retirement now, and that all starts with getting a retirement plan. This guide will help explain what your options are for retirement plans and the benefits of preparing for your future. 

retirement plans

401(k) Retirement Plan

Firstly, 401(k) is just the tax code for the retirement plan. It has nothing to do with what the plan means. Sorry, you don’t get four hundred and one thousand dollars into your savings. A 401(k) is a retirement plan that is provided by your employer in which they will automatically take money out of your paycheck and set aside into a separate account- your retirement. This money is also taken out of your paycheck before taxes are deducted, so you’ll get more money placed in your retirement fund. 

Individual Retirement Account (IRA)

An IRA is an account that you open yourself, not your employer. You open these accounts at a bank, and you are the one who deposits money into the account. The most common IRAs are Roth and Traditional. There are others, such as SEP, SIMPLE, Spousal, Backdoor Roth, Self-directed, Inherited, and rollover (https://www.nerdwallet.com/article/investing/learn-about-ira-accounts ). There are various benefits and qualifications for each IRA that you can discuss with your bank, financial advisor, or accountant. 

Why You Should Have a Retirement Plan

When you are in your 60s and no longer want or can work, having a retirement plan will have paid off. With the money you have saved up for your retirement you will be able to live life without worrying about making money. If you have saved enough money, you will live at the same quality of life you were previously, if not better. 

retirement plans

Social Security

As a young person, the only way you are familiar with these two words is that card with nine digits. This is how the Social Security Administration tracks your money. When you reach the age of retirement you will receive retirement benefits from the social security administration, which has been provided by the citizens of the United States through their payment of taxes. However, this check you receive in the mail from the government will likely not cover all of your expenses. This is why having a large sum of money in your retirement plan is helpful. 

Medical Bills

The simple fact is, as you age, your body will stop functioning as well as it used to. This means your overall health will decline as you age, and you will likely need to visit the doctor more often, see a specialist, etc. Medical care can be expensive, and without a constant income could become a big problem. Having money saved in your retirement fund will help you pay those bills for when they come up. 

retirement plans

Nursing Homes

Not all people get older live in assisted living or a retirement home, but many do. These places can be costly. According to seniorliving.org, it can cost $100,375 a year to live in a private room at a nursing home. Some of these costs can be covered by things like health and life insurance, but you’ll still have to pay some of the money. Remember that the older you get, the more likely you’ll need medical care, and living in a home is one way this might pan out. 

Building Wealth

Putting money into your retirement fund is an easy way to build wealth for when you are older. If you have a 401(k), money is already being put into that account and saved. Since the money was never in your possession, you won’t miss it, and it’s a great surprise when you check the balance later on. Having retirement plans also increase your net worth because they are considered assets. 

Spoil Your Grandchildren

There’s nothing like having a good relationship with your family. Of course, you don’t need money to do so, but it can help. Sharing experiences together, taking trips, buying them Christmas presents can all have a positive effect on your relationship with your grandchildren. Most people have fond memories of their grandparents, and with the ability to spoil them, you will likely have them begging their parents to go to grandma’s house. 

retirement plans

Purchase Items You Always Wanted

Since you have built wealth by saving in your 401(k) or IRA, you might have a lot of money left over after your expenses. This can allow you to buy items you’ve always wanted to buy. That could mean anything from a car to a stand mixer. You’ll have plenty of money to share with your family and friends. It’s always nice to be able to help out. 

Pick Out Your Plan

With many options for retirement plans, you have to assess your options and how it will fit into your lifestyle now as well as how you want to live your life in the future. From 401(k)s to IRAs, you have plenty to choose from and can also have multiple retirement plans at the same time. With a retirement plan, you will be able to afford the cost of living as an older person and have a little extra money to play around. 

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