How to Choose a Retirement Fund

It’s never too early to begin planning for retirement to make sure you have the ability to enjoy your sunset years in relative financial security. With many options for saving, you’ll need to choose a retirement fund that fits your needs.

What is a Retirement Fund?

A retirement fund is a general term that includes a variety of different types of accounts or savings vehicles. A retirement plan sponsored by an employer includes 401(k)s, 403(b)s and 457(b)s. Your diversified savings plan might also include individual retirement accounts, known as IRAs. IRAs are ideal for business owners, self-employed individuals and those who don’t have employer-sponsored retirement plans available to them.

Employer-Sponsored Retirement Funds

Often the best retirement funds are employer sponsored. Workplace retirement plans demand that you understand exactly how your employer will match your contributions. Your first goal should be to contribute to the level of employer match so the free money will start to accrue.

Employer-sponsored retirement accounts generally fall into the category of defined contribution plans, usually 401(k)s. With payroll deductions, you can contribute to your account. If you’re lucky, your employer will match your contributions at a predefined level. 403(b) plans have higher limits for matching, and 457(b) plans would typically be offered along with 401(k)s and 403(b)s.

Individual Retirement Funds

You’ll have a number of choices if you decide that an IRA is for you.

A traditional IRA provides sizable tax breaks, and your contributions could be deductible depending on your tax filing status and income. Your earnings from investments aren’t taxed while the money is in the account, and when it’s time to withdraw after retirement, these funds will be taxed at your applicable tax rate.

Roth IRAs play nicely with traditional IRAs thanks to a few key features. Your contributions aren’t deductible, but withdrawals during retirement are tax-free.

A simplified employee pension IRA fits the description of traditional IRA, but an employer can set up and fund this for employees. The employer then derives tax benefits, while your earnings accrue in tax-free status until you begin to withdraw them in retirement.

Retirement Fund Performance

Once you set up your retirement funds, monitor the accounts to make sure they’re performing as expected. For IRAs, it’s typical to have an asset mix of cash, bonds, mutual funds and stocks for a diverse mix of funds. This helps protect your investment and makes it possible to see maximum growth. Short-term returns need to be balanced with longer term less aggressive funds.

Managing Retirement Funds

Most experts agree that you should be saving as much of your income toward retirement as possible, planning for a minimum of 30 years of retirement. It’s also helpful to have about one year of living expenses (minus Social Security and pension) available for use if you need it. Regular review of your investments will be important to make sure you’re on top of your investments and savings.

ADVERTISEMENT

To know if you’re managing your retirement funds adequately, do some calculations to determine what your expenses in retirement will be and how you will cover them.

ADVERTISEMENT

MORE FROM ASKMONEY.COM