Retirement - Exodus Lending - Exodus Lending


By Kaitlyn Szabo February 28, 2019

It is difficult to think long-term, especially for events as far away from retirement, when you are simply trying to stay on top of all your everyday affairs. That doesn’t make it any less important, though, so take some time to learn about retirement savings accounts and savings strategies.


Retirement Accounts

Retirement accounts are tax-advantaged holding accounts designed to encourage people to save for retirement, with limitations on yearly contributions. The asset allocation within the accounts within, such as stocks, bonds, or mutual funds, is based on your risk aversion.


A 401(k) is an account offered by the employer. You would make pre-tax contributions, and often your employer will match a certain percentage. Educators and non-profit employees would use a 403(b), and government employees would use a 457(b).


An individual retirement account (IRA) can receive individual contributions as well as savings originally from an employer-sponsored plan.


  • Traditional IRA: pre-tax contributions are tax-deductible, but taxed as income when withdrawn
    • Similar to traditional IRAs, SEP and SIMPLE IRAs are for small-businesses or self-employed individuals
  • Roth IRA: post-tax contributions are not tax-deductible, but tax-free when withdrawn


Other sources of retirement income included pensions, Social Security, and annuities.


Retirement Savings

While challenging, it is essential to take charge of your retirement plan and take small steps to start or boost your retirement savings. Here’s how:

  • Automatically transfer 1% of your paycheck and increase incrementally by 1%.
  • If your employer offers a match, contribute enough to secure it.
  • Make a contribution based on your net pay. “If your take-home pay is $314.27 take the first number ($3) and the change (.27) and deposit that in an IRA ($3.27).”
  • Save part of your tax refund for retirement.


Be Cautious of Early Withdrawals

While tempting, your retirement savings are intended to be there for your retirement. Early withdrawals will negatively impact your ability to retire comfortably.


As Clever Girl Finance notes, early withdrawal negatively impacts your ability to build wealth because:

  • You lose the potential long-term gains and benefits of compounding interest
  • You will be liable to pay income taxes and a 10% additional penalty on the total amount withdrawn (including withdrawals from non-taxable retirement accounts like a Roth IRA).


Try to save up a separate emergency fund in a high-yield savings account to cover unexpected expenses.


Money Management E-Newsletter: February 2019