Retirement

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Retirement is the point where people traditionally stop working and live off of their savings, pensions and social security. Traditional retirement age in the US is 67 although many people retire earlier or later depending on their financial needs.

As life expectancy increases, it is expected that retirement will change with many people opting to continue working later in life. Some experts expect older workers to shift to more part time positions allowing them more flexibility for travel and recreation.

Retirement investments[edit]

There are a number of different investments designed for retirement. Most offer some type of tax advantage savings. The government is interested in having people save for retirement because it reduces the amount they will pay out in social services.

Roth IRA[edit]

A Roth IRA is a tax advantaged account that allows you to deposit after tax money for use in retirement years. The money grows tax free and can be removed during retirement without triggering any type of income tax. This type of individual retirement account is ideal for people investing early on in their careers when they are likely to be at a low tax rate and the money has many years to grow.

Traditional IRA[edit]

The traditional IRA is a retirement account that allows you to put in pre tax money which lowers your tax liability today. When you remove the money and any increase in retirement, you will pay as if the amount withdrawn was current income. This type of investing is often best for people later in their careers when their income has them in a higher tax bracket than what they will likely be at during retirement and the tax advantage on the principle is greater than the tax advantage of on the potential growth.

401k account[edit]

401k accounts work similarly to traditional IRAs but they have much higher limits and additional paperwork involved. In addition, some 401k accounts will allow you to take your money out as a loan and pay it back with interest to yourself.

403b account[edit]

A 403b account works similarly to a 401k but us usually used by non-profit organizations. In recent years there have been some efforts to combine 403b and 401k accounts into the same type of retirement account in an effort to simplify tax law.