Let’s Talk About Retirement: 401K’s and IRA’s
Retirement Plans:
Retirement plans are offered by the companies you work for in order to help you save for your eventual retirement. There is a multitude to choose from, but three of the most common are pensions, IRA’s, and 401k plans. 401k plans are not affected by income tax; a portion of your paycheck is automatically deposited into a company-sponsored bank account. People in a 401k plan can also control where their money goes in terms of investments. Pensions are also company-sponsored, but unlike 401k’s, people cannot control where their funds are being invested in. This has led to a decline in pension plan offerings as 401k plans have become more popular. IRA plans (or Individual Investment Accounts), on the other hand, are managed completely by the individual. IRA’s are post-tax investments, meaning that the money is deposited into the investment after your paycheck is received. If you keep the money in your IRA until the age of 59 ½ years old, you will not have to pay federal capital gains taxes.
How Inflation Affects Your Wealth:
Lastly, let’s talk about inflation. You may have heard the term floating around the news, but what is it? Inflation is the decrease in value of a country's currency. Inflation is most commonly caused by the excessive printing of money. This may sound like a bad thing, but a steady increase in inflation is actually good for the economy. Inflation is the reason why your parents could buy a pack of gum for $.05 in 1960, but today a pack of 5 Gum would run you $3.58 (that’s on Walmart, mind you). The opposite of inflation would be deflation, where the value of a currency goes up. This could mean that consumer activity is stagnating, indicating a market crash. Deflation was a big reason for the great depression.
Inflation has a big effect on our everyday lives, as it determines how much our money is worth. That is why it is not smart to just have your money sitting around in the form of cash, because that amount of money may be worth much less in ten years' time. This is why many people choose to invest their money into stocks or store their money in a bank account that pays interest. In this way, they can ensure that their money will retain the same or more of its value as time goes on.
