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Saving Money Tips for Every Age

It's never too early to plan for retirement. Here are a few helpful hints at how to start investing in a savings fund.

Retirement savings tips for people ages 18-30

Pay yourself now! According to Tammy Gibson-Reynolds, benefits and retirement specialist at Consolidated Financial Corporation in Southfield, you should start planning for retirement at age 18. She says even if it is only $25, start putting money away in an IRA and "be consistent about it." 

"If they learn that premise at that young age—to 'pay yourself first'—then, when they do get to that age 60 or even 55, they put the power in their hands as opposed to someone dictating to them, 'you can go ahead and retire now,'" says Gibson-Reynolds.

Corey Trammell, financial advisor at Hantz Financial Services in Southfield, encourages people in this age bracket to take advantage of the Roth IRA. According to the IRS, "qualified distributions are tax free" with a Roth IRA. This means when the time comes to withdraw your money during those golden years, you don't have to report it as a part of your annual income because you already paid taxes on it. Also, at age 18, you are likely in a lower tax bracket than you would be when you are 65 because you're earning less, which makes the Roth the best option, Trammell adds.

Trammell suggests trying your best to put the maximum amount of money you can into the account yearly. In 2014, the maximum contribution someone under 50 can make is $5,500 a year. The benefit of doing this is the accrued interest it will accumulate over the course of 40 years.

"In a hypothetical situation, at age 18, if you fund your Roth IRA to the maximum for that one year and never put a single dollar in ever again, once you go to retire at age 65, that account will grow from $5,500 to $593,046.54, assuming that you earned 10 percent interest," says Trammell. "That just goes to show you how powerful it is to start saving early."

Retirement savings tips for people ages 35-late 40s

Diversify! Having money to pull from, from different accounts, is considered one of the smartest things you can do at this point, according to both Gibson-Reynolds and Trammell. They suggest having a traditional IRA (not to be confused with the Roth IRA) or 401(k), depending on the account that's right for your profession—along with the Roth IRA. This allows you to take from both and reduce your taxes on the savings.

One of the differences between the Roth IRA and the regular IRA is that with the regular IRA, taxes are deferred until retirement. When it is time to take that money out during retirement, it will have to be reported as part of your income for that specific year. Trammell says pulling $40,000 from the Roth IRA then pulling an additional $10,000 from the IRA will save you a lot of money because only the $10,000 will be taxed as your annual income. That's if you don't have any other dollars coming in.

Gibson-Reynolds says you should have "different buckets of dollars to be able to pull from" during retirement and use the Roth IRA when you need "a lump-sum amount of money."

She adds that people in this age bracket should have some type of idea of how much they need to save and what they need to do now to retire comfortably.

"That's when I start telling them they need to put at least 10 percent of their salary away, at the minimum, a year," she says.

Trammell also says fund your "401(k) to the match." Some employers will match the amount of money you put into a 401(k) up to a certain point. Trammell suggests taking full advantage of that, because it's free money.

Retirement savings tips for people ages 47-65

Save as much as you can! At this point, you should already know how much money you will be working with as far as retirement.

"Stock it all away, as much as you can, until it makes you scream. You are closer to retirement, and we want to make sure that you will be able to substantiate your lifestyle during your retirement," says Gibson-Reynolds, who added that her clients don't always listen to that advice. "At that age, you can kind of almost predict what that future, as far as inflation wise, is going to look like when it is time to retire."

Trammell says that soon-to-be retirees should focus on putting their money in the traditional IRA and 401(k), or whichever retirement savings account is provided by their job, rather than the Roth IRA. Since this age group is in the highest tax bracket, using the IRA will help you save money because taxes are deferred until you withdraw.
 

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