Contributing to a Retirement Plan Now Is Essential for Your Future

If you are of working age, retirement may seem like a very distant event, but for too many people, retirement sneaks up quickly. While it’s always best to start contributing early to a retirement plan like a 401 (k) or 403 (b), it’s never too late to start. The government even allows older individuals to contribute more untaxed money than younger workers, to ensure the money is there at retirement.

Why should you get started and contribute as much as you can afford to a retirement plan? Consider the grim fact that the Social Security Administration does not have enough funds to go around for future retirees. You cannot count on Social Security alone to fund your retirement.

Even some pension plans are in jeopardy, and you may not be able to count on an inheritance from your parents. Anything could happen. Your parents may have retired with a large nest egg, but their funds could be completely depleted for any number of reasons, including health. There are also a lot of nasty surprise taxes levied such as Inheritance Tax (or Death Duty, as it is sometimes called). If your parents have not made an up-to-date will or settled up on taxes at the time of their death, the government can (and will) take taxes of 40% or higher. The more money your parents have, the more taxes the government can take. This can be a nasty shock at a time when you are already grieving. You may receive next to nothing by the time their will is dispensed, so always (gently) remind your parents, no matter what age they are, to keep up to date with their taxes.

One way a parent can alleviate the high rate of Inheritance tax is by giving some of their money away to you as gift before their passing. If they are in ill health or know that they may not be around for very much longer, they are legally allowed to give their children a tax-free gift. Check with a tax expert to find out how much they can legally give you as a gift. By reducing the value of their estate and passing on their savings to you while they are still alive, the sting can be taken out of Inheritance tax by a few prudent steps.

Your retirement is your responsibility and you can truly do something about it right now. In ten, twenty, or thirty years, you’ll be glad you started saving, because there’s no magical way to bring back all that time. Time is your best friend while you’re working, because it’s what makes compounding interest possible. The longer you wait, the less time you have to make strong gains in your retirement plan. With automatic pre-tax withdrawals, you’ll barely miss the money, yet you’ll be building the kind of retirement plan that you deserve.