IRA Investment: What You Need to Know to Retire on Your Own Terms

For most Americans, retirement seems like an always-distant horizon; they can see it but feel they need more money to reach it. You can save more for retirement while saving on your tax bill and earning interest on your investment. It’s called an Individual Retirement Account (IRA). It’s a managed investment account, like a mutual fund, that will grow your wealth so you can enjoy your retirement.

If you work for a large company, you may have an IRA: a SIMPLE IRA (Savings Incentive Match Plan for Employees) or a 401(k). Even if you’re maximizing your contributions to these programs, you can still use an IRA from your Credit Union. The extra money you save in an IRA can pay for the things you’ve always wanted to do. You can spend your retirement traveling the world or going back to school. All you have to do is start planning now.

Successful investing in an IRA is more about starting early. If, at age 18, you deposit $5,000 into an IRA and it earns 8% per year, you will retire with $164,000, assuming you make no other savings contributions. Doing the same thing at age 39 will build a nest egg of a mere $40,000. The key to successful retirement savings is good and early planning.

The deadline for contributions to count against your tax burden is tax day, so the time to invest in a brighter retirement future is now. Let’s take a look at some benefits of investing in an IRA:

IRAs come in two forms: Traditional and Roth. A Traditional IRA is tax-deferred. You don’t pay taxes on the money you put into a Traditional IRA. Instead, you pay taxes on your withdrawals. If you have less income after you retire, a Traditional IRA can save you money on your tax bill.

You fund a Roth IRA with post-tax assets. You invest in a Roth IRA with your post-tax salary. Then, you don’t have to pay taxes on the withdrawal. Roth IRAs make the most sense for people who expect to draw a significant post-retirement income. 

The best part about retirement savings with an IRA is that it requires little direct management. You can set up direct deposit from your paycheck to your IRA, allowing you to grow your savings over time. You’ll receive a monthly statement, just like you do from your checking account. It will show you how much your investments have grown.

IRAs are also professionally managed. A full-time financial analyst directs the growth of the fund. Your retirement savings are in the hands of a professional who knows the ins and outs of the market and can make your money work for you. Rates of return on IRAs tend to be higher than on Certificates or savings accounts. 

IRAs offer some flexibility. Withdrawals before retirement incur a tax penalty and other fees, but the money in an IRA is accessible in the case of an emergency. You can also change the size of your contribution month-to-month. This flexibility means you can take advantage of sudden windfalls or expenses.