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Retirement planning? You’re young, so why worry about it? To put it succinctly, it takes a lot of money to retire and have a decent quality of living, so why avoid it? In fact, what you may not realize is that retirement planning starts with your first job. Most companies have moved away from the traditional defined benefit plan (where a defined amount of money is dispersed monthly after retirement) and have transitioned to contributions toward a deferred benefit plan (such as a 401(k) plan) instead.

Maximizing these plans by contributing at least the minimum amount required to get a contribution from your employer, but preferably the maximum amount you can contribute, is best, especially if you have a full employer match. Some may argue that they cannot afford it, but the deferred tax effect from contributing means you really won’t miss that much on your net paycheck. Over the course of your working career, you can then watch the funds grow until there is a “pot of gold” waiting for you in retirement.

Moreover, a deferred benefit plan allows you to rollover the plan (in most instances) when you change employers, making it very portable. Most deferred benefit plans are now managed by a third party, such as Fidelity, that allow you to choose between mutual funds with or without stocks depending upon the level of risk you are willing to assume. Further, most deferred benefit plans allow moving funds between investments for existing funds while new funds invested from current earnings can go into a different investment mechanism than those already held.

The trick is not to wait too long if you want to maximize the level of your retirement income. For those already midway through their career but still have yet to begin, it is never too late to start! Just add a slightly larger percentage to catch up for lack of earlier contributions. The Internal Revenue Service (IRS) maximum contribution allowed changes annually so check the current tables to determine your maximum contribution allowance. There is also a “catch up” contribution available for those who qualify. Ensuring yourself a nice retirement income is easier that it seems. All you need to do is contact your Human Resources or Benefits representative and start investing in a plan today.

By Daniel Bargy, CPA, CIA, CISA, CRMA, FLMI
Member of the MICPA Financial Literacy Task Force