What is your vision for your retirement? Maybe you plan to have a second home in Arizona. Perhaps you want to spend time traveling. And you might have a vision to ensure that you are debt-free and financially prepared for any medical uncertainties. 

Whatever your vision, it’s important to map it out and plan early. Robin Frahm, assistant vice president, First National Bank Northeast in Lyons, shares some advice on planning and saving.

“The best thing to do is to start early because the compounding is to your benefit greatly,” Frahm said.

Frahm explains that the earlier you can start saving, the better, so that you can reap the benefits of compound interest.

“The younger they start, the more it gets to compound,” Frahm said. “The longer you wait, you lose all of that compounding.”

Early planning

Retirement planning can start as early as you’re willing. The earlier you begin, the more risk you can take, Frahm explained. She noted that those who are in their 20s and 30s may have portfolios that contain more stocks than bonds. When reaching age 40 or 50, many begin investing more heavily in bonds. 

Starting an IRA

Popular nest eggs include Individual Retirement Accounts (IRAs). There are two options for this, and the difference lies in what part of your investment is taxable. Frahm explained the first, a regular IRA.

“Those are pre-taxed dollars that go into the account which means that you do get a benefit,” Frahm said.” She noted that at the time of withdrawal, those dollars are then taxed. 

The second, the Roth IRA, works oppositely.

“Those are tax dollars that go into the account,” Frahm said. “After age 59.5 those are not taxed at that time.” 

She advised watching out for early withdrawal penalties that can be placed if you withdraw money earlier than halfway through age 59. Consider at what age you’ll need the money and when you want to be taxed on that money to determine the IRA that’s best for you. It may be a mix of both.

Paying off debt

If you have debt, deciding whether to put your money towards paying it off or saving for retirement can be a difficult choice. The first thing to consider is the interest rates on your debt. 

Frahm advises, “It depends on what interest rate you’re paying on your debts.If you’re paying a high interest rate on your credit card, I would think it would be to your benefit to pay it off.”

Ultimately, Frahm says it’s important to talk with your financial adviser for advice, and to learn about other ways to invest in the future. With a plan in place, you can be at ease in your retirement.

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