“There are essentially three things you got to do to prepare for retirement,” Caroline Bruckner, Kogod Tax Policy Center’s managing director, recently told Yahoo Finance Live. “Number one, you got to save in a preferably tax-advantaged retirement saving plan. Number 2, you have to have your individual savings outside of that.”
“And then number three, people tend to rely on Social Security” for retirement, especially women, which often is not enough, Bruckner said. She encourages Americans to look at individual retirement accounts or IRAs.
“IRAs [and] Roth IRAs are things that most Americans don’t necessarily utilize in the way that they should,” Bruckner said.
For people who don’t have access to a workplace retirement, Bruckner pointed out that setting up an IRA or a Roth IRA can be done online with relative ease and minimal expense, depending on your income.
“The income eligibility rules are fairly generous for most low and moderate-income Americans,” she said, “particularly those that don’t otherwise have access to a retirement plan.”
IRAs and Roth IRAs don’t come with the benefit of automatic paycheck deductions like 401(k)s or 403(b)s, but Bruckner said that “thoughtful taxpayers” can use their annual tax refunds, instead.
Throw that money into an IRA if they don’t otherwise have access to a retirement plan, forget about it, and just let it grow,” she said. Annual IRA contributions are capped at $6,000 and $7,000 for people over age 50.
Investing in other accounts like “traditional retirement savings plans” like IRAs and 401(k)s “can really help substantiate an overall retirement saving strategy.”
“The earlier you can start saving, the faster that money will grow and help substantiate your retirement,” she said.