We all know that women live longer than men. If you\u2019re a woman, the\u00a0World Health Organization<\/a><\/strong>\u00a0reports that you will live, on average, six to eight years longer than men.\u00a0 In the United States women live, on average, to age 81, while\u00a0men live to an average age of 76.\u00a0 If you\u2019ve ever visited a retirement community, you quickly see that women outnumber men.\u00a0 This is why retirement saving and planning is so important<\/a><\/strong> to achieve financial independence for women.<\/p>\n \u201cSave early, save often\u201d, so the saying goes.\u00a0 The implication is that you start saving as early as you can, and that you should save as much as possible.\u00a0 Why?\u00a0 Because of the\u00a0\u201cmagic\u201d of compounding<\/a><\/strong>.\u00a0 Compounding is what allows even small amounts of money that you save to grow into a large sum, given enough time.\u00a0 The money you save earns a return.\u00a0 Over time, your account will generate earnings on your old and new contributions, as well as on past earnings you\u2019ve accumulated (\u201cearnings on earnings\u201d).\u00a0\u00a0 As your savings grow, you generate earnings on a bigger and bigger pool of money.<\/p>\n By way of example, let\u2019s say you want to save $1 million for retirement at 65, and assume you\u2019ll earn 7% per year on your investments.\u00a0 If you start saving at age 20, you\u2019ll only need to save about $264 a month.\u00a0 But if you wait until age 45 to start saving, you\u2019ll need to set aside over $1,900 a month to reach that $1 million nest egg by age 65.<\/p>\n An Individual Retirement Account \u2013 or IRA \u2013 is a personal retirement account that allows you to contribute pre-tax dollars to an account that can grow tax-deferred.\u00a0 You won\u2019t pay any tax on growth in the account. When you take a withdrawal for retirement income, the entire distribution will be taxed as ordinary income.\u00a0 There are contribution limits, and if your income is too high you may not be able to deduct your contribution for income tax purposes.\u00a0 At age 72, you\u2019ll have to begin taking required minimum distributions<\/a><\/strong> (or RMDs), because the IRS eventually wants to collect the taxes they allowed you to defer.<\/p>\n A Roth IRA is similar to a traditional IRA, with the biggest distinction between the two being how they\u2019re taxed.\u00a0 Your contributions to a Roth IRA are not made with pre-tax dollars, but rather with after-tax dollars.\u00a0 As with the traditional IRA, you won\u2019t pay any tax on the growth in your account.\u00a0 But once you begin withdrawing funds, the distribution from the Roth account is tax-free.\u00a0 And, unlike traditional IRAs, Roth IRAs do not have required minimum distributions.<\/p>\n So, which is better \u2013 the traditional IRA or the Roth IRA?\u00a0 Well, the decision is really a bet on your current tax rate versus your anticipated future tax rate.\u00a0 If you\u2019re young, and you\u2019ve just started out in your working career, it\u2019s reasonable to assume that your income (and your tax rate) will go up in the future.\u00a0 So, you\u2019d be better off paying taxes today, at a relatively lower rate, than in the future, at a higher rate.\u00a0 In this scenario, the Roth account, which offers you no tax deduction for account contributions today, but which allows future withdrawals to be taken tax-free, is more attractive.<\/p>\n <\/p>\n If you\u2019re married but haven\u2019t earned employment income in a given year \u2013 perhaps because you\u2019ve taken primary responsibility for raising your kids \u2013 you\u2019re not out of luck.\u00a0 If you file taxes jointly with your working spouse, you can still contribute to a traditional or Roth IRA. The key is that your working spouse must earn at least as much as is contributed to both your IRAs.\u00a0 The same contribution limits and income restrictions apply.<\/p>\n Note that contributing to a traditional or Roth IRA also doesn\u2019t stop you from participating in a retirement plan at work, if your employer sponsors one.\u00a0 By saving in both an IRA and a workplace retirement plan, you can boost your retirement savings and make progress toward financial independence.<\/p>\n Studies of the American labor force show that barely half of adult workers participate in a retirement plan.\u00a0 The percentage is lower for younger workers, and higher for older workers.\u00a0 While it may seem logical that the participation rate for younger workers is low \u2013 because their income is generally lower, and they\u2019re not (yet) focused on retirement<\/strong><\/a> \u2013 they\u2019re also missing out on the undeniable benefits of compounding.\u00a0 So, even if you\u2019re young, you should participate in your employer\u2019s retirement savings plan with as much as you can afford to save.<\/p>\n The majority of large companies that offer a retirement plan include both traditional and Roth options, so that you can make either pre- or after-tax salary deferral contributions.\u00a0 If your employer\u2019s plan doesn\u2019t offer a Roth option, it\u2019s worth the time and effort to ask your H\/R department to consider adding one.<\/p>\nStart Saving Early<\/h2>\n
IRAs and Roth IRAs<\/h2>\n
Want to learn more about how you can boost your\u00a0retirement savings?\u00a0<\/span>Contact our team at Springwater Wealth today to learn how\u00a0<\/span>we can help.<\/span><\/span><\/strong><\/a><\/h2>\n
The Spousal IRA<\/h2>\n
Participate in the Retirement Plan at Work<\/h2>\n
How to Pay Yourself First<\/h2>\n