Euphinance’s Retirement Philosophy
Society often emphasizes “saving for retirement”, but life is about more than just planning for after 65. At Euphinance, the belief is that life should be lived fully at every stage, not just in the golden years. It’s about seizing opportunities, making memories, and savoring every moment today, tomorrow, and always.
Money is a tool to live a rich and fulfilling life at every stage of it, not just after retirement. With this mindset, it is recommended to allocate money across four account types to ensure comprehensive planning for each life stage:
- Retirement Accounts – Long-Term. Money earmarked for retirement age. Experts suggest allocating 10-15% of your pre-tax income. The amount you decide to contribute should align with your individual goals and circumstances.
- Investment Accounts – Mid-Term. Funds for goals before retirement ideally invested in stock index funds and left untouched for at least 5-10 years to grow.
- Savings Accounts – Short-Term. Emergency Fund, and savings for planned experiences and vacations in the next 1-5 years.
- Checking Account – Immediate. Funds for daily expenses and bills.
Many people overlook investments (Item #2), because they feel it’s too risky or that they don’t have enough money to invest. However, investments can start with small amounts of money (as little as $5), and they can be low-risk with solid principles. To learn more, explore our article on investing HERE.
Why is planning for retirement important?
Now that I’ve described the Euphinance philosophy of saving money for all life stages, rather than just retirement, let’s zone in on Retirement itself.
There are two main reasons for putting money into retirement accounts:
- Ensure you aren’t working your whole life.
- Save on taxes – now and in the future.
Reason #1 above may sound obvious. But, it’s important to mention, because retirement accounts are designed to prevent you from using the money before you reach retirement age. There are significant penalties for taking money out of your retirement account early. This gives discipline, and helps ensure you don’t use up your retirement money when you’re still young.
How do I choose which retirement accounts to invest in?
To decide which retirement accounts to invest in, consider the following:
- Employer Match – If your company offers a match, contribute enough to get the full match, as this is essentially free money.
- Income Restrictions – Be aware of income-based contribution limits and tax implications.
- Tax Strategy – Decide whether you want to save taxes now or after retirement. Roth Accounts can provide tax benefits after retirement, while traditional accounts offer tax advantages now.
Comparing 4 Most Common Types of Retirement Accounts
The below table summarizes the most common types of retirement accounts. For a complete listing, please visit the IRS’ website HERE.
| Traditional 401K | Roth 401K | Traditional IRA | Roth IRA | |
|---|---|---|---|---|
| How to open? | Provided by employer | Via online brokerage (see my free guide) | ||
| Employer Match? | Yes, up to a limit | No | ||
| Save on taxes in contribution year? | Yes | No | Yes | No |
| Save on taxes after retirement? | No | Yes | No | Yes |
| Max Contribution Limit (2024) | $23,000 per year total in all 401(K) accounts | $7,000 per year total in all IRA accounts | ||
| Pros | Higher Contribution Limits | More choices of investments than 401(K) | ||
| Employer Match (free money) | Lower account fees than 401(K) | |||
| Save on taxes in contribution year | Money grows tax free | Save on taxes in contribution year | Money grows tax free | |
| Cons | Higher account fees than IRA | Lower contribution limits than 401(K) | ||
| Less choices of investments than IRA | No employer match | |||
Next Step
Read the article about Investing. Start reading HERE.