Published by Taylor Financial Group (for women)
This is Week 3 of our weekly series on “How to Avoid 4 of Retirement’s Biggest Pitfalls.” In Week 1, we emphasized how every woman needs to calculate her retirement savings needs, or she risks not saving enough money and running out of money in retirement. In Week 2, we reminded you that women need to start saving their money sooner rather than later for retirement and highlighted the benefit of saving and investing early. If you missed either of those posts, we highly encourage you to click on the links above to learn the tips and tricks to avoiding retirement’s biggest pitfalls.
This week we address the need to invest in retirement plans. Only 72% of women save for retirement through employer-sponsored plans (such as 401(k) or similar plans) compared to 80% of men. 401(k)’s or similar plans can go a long way towards helping women, as they can provide you with tax benefits as you save your money. 1 Additionally, some employers provide 401(k) matching (where your employer will match your contributions to your retirement account up to a certain point). By sheltering investment growth in these tax-deferred accounts over the long term, you will likely possess more wealth for retirement. For example, in the chart below, the growth of $100,000 for a household in the 24% tax bracket grows to only $381,037 in a taxable account (taxed annually), but in a tax-deferred account that money grows to $574,349 before taxes and produces $460,505 in gains after taxes. By sheltering investment growth in tax-deferred accounts (rather than taxable accounts), the graph shows a $79,468 total net gain over the long term. 2
Figure 1: The Power of Tax-Deferred Compounding 2
We know that the benefit options can be confusing. If you are unsure whether you are taking full advantage of the benefits offered to you, contact us at Taylor Financial Group and we will work with you to create a more stable financial future.
- 10 Alarming Facts about Women and Retirement Risks, ThinkAdvisor, 3/9/17
- Guide to Retirement, JP Morgan, 18
Distributions from traditional employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty.
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