Which Plan is Best for You: 75 is New Expected Retirement Age

Photo: Forbes.com

According to a new study by Nerd Wallet, a leading website on finance and financial tools, the class of 2015 will retire at the average age of 75. With the current average age of retirement being 62 years old in the United States, the study suggests that an increase in student loan debt and higher rent rates contributes to the later retirement age.

In January 75 percent of metropolitan and micropolitan areas in the United States experienced year-over-year gains in January by 3.3 percent, Zillow reported. Add the higher rent rates and the average student loan debt of $35,051 and you can see why the retirement age might be pushed back in years to come. However, it is not too late for graduates to start saving for retirement now. It is important for recent graduates, and anyone planning to retire, to educate themselves on the types of retirement plans and how they work.

Which Retirement Plan Is Best For You? 

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401 (K)

A 401(K) is a type of retirement plan that is sponsored by an employer.  This type of plan lets one save and invest parts of their paychecks with no taxes taken out. However, taxes are taken out when the person decides to withdraw their money. Although, employers are not legally required to, they usually match the amount of money their employees put into their 401(K) plan.

According to the 401(K) Help Center, having a 401(K) has many benefits. Here are a few:

1) Any business can establish a 401(K).

2) The employer can receive certain tax benefits for contributions.

3) Excellent range of investment options available for the plan sponsor to offer within the plan.

4) The investment choices in most plans range from 8 to 25 options. The average plan has about 19.

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IRA

An individual retirement account (IRA) is another type of retirement account that is set up at a financial institution that is based on tax-free growth or tax deferred basis, according to Fidelity, a financial planning service . There are three different types of IRA accounts to choose from.

First, a traditional IRA allows a person fully or partially deduct their contributions made to their IRA from their taxes. According to the Internal Revenue Service (IRS), if you are under the age of 50, you can contribute a maximum of $5,500 to your IRA and Roth IRA.

Second, a Roth IRA allows a person to make contributions that they already paid  taxes on, and those contributions can grow tax free.

Third, a rollover IRA allows a person to “rollover” other retirement plans, such as a 401(k), to an IRA.

Planning is Key

Retiring without enough money to live on does not have to be a fear if you start planning and saving for your retirement now. Whether you decide to put your money in a 401(k) or an IRA, or both, it is essential that you check your investments often. Having a trusted financial adviser is a good way to learn more about your retirement options and how much money you should be contributing.

 Emily Newton is a staff reporter for Hottytoddy.com and Magazine Editor for Experience Oxford. She is a recent graduate of the Meek School of Journalism and New Media of Ole Miss. She can be reached at emily.newton@hottytoddy.com.