The concept of retirement is actually a relatively new one. Back in the 19th century, almost everyone worked until they died and the tiny handful of people (around 4%) who reached their 60s, were allowed to live with their families until they died. However, planning for retirement and creating a retirement account was simply not an issue because so few people had the need to do so. That, however, was then and this is now, as the old saying goes.
IRAs and Pensions – The Old Standby
IRAs or Individual Retirement Accounts and pensions became common by the middle of the 20th century as a way to save money for retirement. In 1910, just 17% of Americans had a pension, for example, while that number jumped to 75% in the 1970s. Today, the situation has reversed once again, with pensions becoming a thing of the past and modern 401K retirement accounts often proving to be a poor substitute for the old system of guaranteed pensions.
Roth IRA – The New Standard
One of the most popular new options available for retirement savings is the Roth IRA – it’s a kind of hybrid retirement account. Standard IRAs work by allowing you to deposit money into the account and avoid paying taxes on the cash until such time as you are ready to withdraw it. This means that you save money during the current working year and then pay taxes on the money only when you eventually retire.
Roth IRAs, by comparison, work by allowing you to deposit after tax money and then have it grow and get withdrawn tax free. Ultimately, this means that you’ll spend more money each year in the short term, but in the long term, you’ll save money when you eventually retire. This means that Roth IRAs are much more popular as an option for retirement. However, they aren’t available to everyone since they have income limitations, restricting them primarily to middle class Americans.
The Problem with Retirement
The problem with retirement is that most people are simply not saving enough for it. It is estimated that the average retirement account as of 2010 has just $29,000 in it.
Therefore, a retirement savings crisis of sorts has started to spread throughout the United States with people facing retirement without adequate savings. This has led to increasing reliance on Social Security, which was always intended to be the retirement account of last resort rather than the primary method of retirement.
What You Can Do
If you find yourself facing a retirement savings crisis, it’s time to stop worrying and start working. Do what you have to do to put away some money for your retirement savings so that you can begin to prepare for your golden years. Cut down wherever you can and start moving your cash into a Roth IRA. Also, take full advantage of matching from your employer on your 401K accounts so that you can see the maximum benefit from those as well.