The New Reality of Retirement
The way we work is changing, and with this change comes the need to save and plan for retirement differently. The tilr Association, an ecosystem of resources designed to support the independent worker, presents this guest blog by Honest Dollar by Goldman Sachs, a digital retirement account platform.
This guest blog is brought to you by Honest Dollar by Goldman Sachs. As part of our growing ecosystem to support independent workers, tilr is happy to provide you access to a service that can make saving for retirement easy. Honest Dollar is a digital retirement account platform built for today, to help you save for the future.
The way we work is evolving faster than the way we plan for retirement. While the varying retirement plan options have evolved in the past few decades, the most significant change is that the responsibility for saving toward retirement has shifted from the government to employers and now to individuals.
20+ years ago it was more of the norm for workers to be covered by a defined benefit plan or pension. Pensions generally pay a fixed sum of money each year, or annuity, based on a worker’s years of service and salary at retirement. This means 20 years ago, your retirement amount was determined based on showing up and getting paid, rather than your personal saving habits.
Now, nearly half of workers can participate in a defined contribution plan like the 401k. These allow the employer, employee or both to make contributions toward a retirement account on a regular basis.
The rise of freelancers and small businesses
There has been a growth of Small Businesses and self-employed or contract workers in the US. According to the 2017 Freelancing in America Report, 57 million Americans are freelancing. Half of freelancers also claim “no amount of money that would get them to take a traditional job and stop freelancing,” meaning the independent workforce is here to stay. From the same 2017 report, of the 68% of Freelancers that put money into savings last year, only 38% are using the savings for retirement. Not only are retirement plans less available to these workers, but today’s workers also change jobs more frequently, meaning they must take retirement into their own hands. Luckily, there are plenty of retirement planning options for these workers.
Individual Retirement Accounts (IRAs) are yours, and stay with you no matter where you work. Each is a type of account that lets your savings and investments grow with certain tax advantages, so you can stack more toward your retirement. For more information, the IRS defines each type of these accounts at IRS.gov.
ROTH: Pay taxes on the money you put in, but not when you take it out.
You can set aside after-tax income up to a specific amount each year and let your money potentially benefit from decades of tax-free, compounded growth until you’re ready to withdraw it.
TRADITIONAL: Save on taxes on the money you put in, and pay taxes when you withdraw it.
You can set aside pre-tax income up to a specific amount each year and some of those contributions may be tax-deductible depending on your income and tax-filing status. When you’re ready to retire, this money will be treated as current income.
SEP: A type of IRA that offers a potentially higher maximum contribution depending on your 1099 income.
If you’re self-employed you may be able to contribute a percentage of your compensation up to a $54,000 maximum contribution in 2017 ($55,000 for 2018). You can contribute this pre-tax income each year and receive tax deductions depending on your income and filing status. Like a traditional IRA, this money will be treated as current income when you retire.
No matter the IRA you choose, it’s important to start sooner rather than later. Honest Dollar provides simple access to IRAs specifically designed for today’s worker.
Take the first step in taking care of you
Honest Dollar offers an easy way to set money aside for your future. By choosing from our easy-to-use and low-cost retirement options, you can save whatever amount is right for you in the account type that best fits your circumstances. Once you’ve started, our website, articles, and customer service team are there to support you. We want you to feel confident in your decisions as you save for your future.
Goldman Sachs & Co. LLC (“GS&Co.”) does not provide accounting, tax or legal advice. Nothing communicated to you on this website, should be considered tax advice. You should consult an independent tax professional regarding your personal circumstances. Regarding SEP IRA contributions by an employer, employers should consult their tax adviser to ensure that they meet the correct contribution limits, and other considerations. This material is provided solely on the basis that it will not constitute investment advice and GS&Co. is not a fiduciary with respect to any person or plan by reason of providing the material or content herein.