Saving For Retirement—Section 1
Saving is the indispensable first step in the creation of wealth. While there are no guarantees, saving systematically and investing wisely over the course of many years increases the chances of a secure and comfortable retirement.
A simple way to save for retirement is through your employer sponsored 401k plan. Consider the advantages of 401k plan participation:
-Your federal withholding tax is automatically reduced to reflect your 401k contribution. As a result, more money is credited to your account than is deducted from your take home pay.
·Your investment earnings grow on a tax deferred basis. No taxes are due until the money is ultimately withdrawn from the plan. Distributions before the age of 59½, however, may be subject to a 10% excise tax in addition to ordinary income taxes.
·Your employer may provide a matching contribution.
·You have the psychological advantage of payroll deductions. You make the decision to invest only once, not every time you cash your paycheck.
·You have the advantage of dollar cost averaging. Dollar cost averaging is an investment strategy based on making investments of substantially equal amounts at regular intervals into the same fund or security. Because you will be buying more shares at lower prices and fewer shares at higher prices, the average cost of the shares you purchase will generally be lower than the average price over the investment period. Dollar cost averaging, however, does not ensure a profit or protect against loss during declining markets. For dollar cost averaging to be effective, you must continue to purchase shares during periods of low price levels. Because of this, you need to consider your financial and psychological ability to continue to make purchases when prices are declining.
To learn more about the tax treatment and accumulation potential of various levels of 401k deposits, please enter your employer code in the login window and select enrollment presentation. If you’re not yet a client of Bauman, Noonan and Associates, enter the code “sample”.
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