Personal Economic Model
For most of us, during our childhood, we had a piggybank of some kind. When you were old enough, the next time you wanted a big price tag item like a bike or gaming system, your parents probably told you to save up for whatever you heart desired instead of just paying it for you. Whether you got an allowance or had a sweet babysitting gig, you probably saved these funds for that precious bike or Nintendo in a piggy bank. When you finally got enough money, you may have cracked open the bank or opened it, counted your funds, and used the entire amount that you put in your piggy bank to buy your new toy.
Saving As An Adult
Unfortunately, as we have all grown older and gotten “adult” jobs, we have realized that being paid the money we earn is slightly more nuanced. No longer is 100 percent of the money we earned available to be put in our savings account—our adult piggy bank—or spent; we realize that we will never get the full amount of money we earned. Our paycheck will always be taxed and, at the end of the day, no matter if you get a physical paycheck or your paycheck is digitally deposited into your account, the government as is legislated will always take their share.
Taxes & Your Retirement Savings Account
The same concept applies when you contribute to a retirement savings plan. First, you must understand that you will always be taxed—unless you take part in unsavory means—no matter what. However, when you are taxed depends on a few factors. When you are taxed is dependent on when you will be taxed; you will be taxed when you contribute or taxed when you withdraw your savings. Additionally, if you redraw prior to age 59, you will also pay a 10 percent penalty.
In other words, the amount of money you pay the government depends on when you decide to pay them: will you pay them before you put the money in your piggy bank or after you crack open your bank to use the money saved.
Understanding the Problem
For most, as they continue through their career, they will move up a tax bracket and will therefore be taxed at a higher percentage. Meaning that in the long run, if you wait to have your contributions taxed later, you will be paying more towards your taxes; you lose out and the government takes a bigger cut of your contributions. Using our piggy bank example once again: if you pay taxes before putting your money in your bank, you will be paying fifty cents. If you pay later you will be paying a dollar.
How Do We Solve the Problem?
If you are like most, you may be wondering what you can do, how you can come out on top, and get the most out of all the hard work and savings that you worked so hard for. There isn’t a one-size-fits-all solution to everyone’s financial “problems” or getting the most out of your earnings. The best thing to do is to look at all of your various retirement savings accounts and talk to a financial advisor. There are many types of retirement savings accounts: 401(k), 403(b), IRA, Roth IRA, HSA, life insurance, an annuity, and others. Knowing what retirement accounts to choose and how to best utilize the ones that you have for the most profit to you can be difficult. We believe speaking with a financial advisor in Arden or Henderson who specializes on wealth management, retirement planning, and general financial planning is a must.
Why a Financial Advisor?
Hiring a financial advisor to look at your savings accounts, discuss your financial goals, and help you see where you might be losing out can change your future. They can help you create measurable goals and a realistic financial strategy to reach those goals. A financial advisor can also help you get the most out of your savings plan and, with a financial advisor who is motivated completely by your gain, we feel you can’t lose.
Ready for Strategic Retirement Planning?
If you are ready to find prosperity and to make sure that you are prepared for the retirement in the best way possible, contact Successful Financial Strategies. We provide retirement planning financial strategies and resources to our clients in Arden and Henderson. Contact us and discover what makes Successful Financial Strategies different from other financial firms.