You may be able to take a loan from your employer-sponsored plan, depending on the rules established by your company. To find out what your plan allows, visit our website for individuals with employer plans.
Vanguard offers investment management and advisory services for corporate and nonprofit investors, information to help consultants better serve their clients, total retirement planning expertise including investments and services for bundled and unbundled plans, and resources for investment professionals and their clients. For more information on any of these services, visit our website for institutional investors.
If your employer offers a retirement plan—whether it’s a 401(k), a 403(b), or another type of defined contribution plan—consider joining it and contributing the maximum, if you can. If your employer matches some or all of your contributions, consider contributing at least enough to get all of the matching dollars. It's free money; don't pass it up.
Contributing to an employer plan provides a double bonus:
For many people, the best way to start saving for retirement may be through an employer-sponsored plan. Since the money comes directly out of your paycheck, contributing to an employer plan is easy and convenient—and you can take advantage of matching contributions if your employer offers them. You can keep increasing your contributions until you're contributing the maximum, then open an IRA.
If you're eligible, a Roth IRA is an excellent choice because withdrawals you make during retirement are tax-free. Unlike a traditional IRA, you're never required to take withdrawals, so a Roth can help you preserve assets for future generations. If you're not eligible for a Roth IRA, however, don't pass up the opportunity to enjoy tax-deferred growth by investing in a traditional IRA as long as you're under age 70½.
Once you're contributing the maximum to your employer's plan and your IRA, consider low-cost annuities. Variable annuities are insurance contracts through which you invest in portfolios of stocks or bonds offered by the annuity. Your money can potentially grow tax-deferred until an age specified by the annuity (usually 85). Earnings withdrawn after age 59½ are taxed as ordinary income; earnings withdrawn before then are taxed and subject to a 10% federal penalty tax.
Annuities have fees and expenses in addition to the usual mutual fund costs, so don't buy one if you aren't maxing out on your employer's plan and IRA. Shop around: Annuity costs vary from company to company, and high-cost annuities can be a very poor deal.
Variable annuities are long-term vehicles designed for retirement purposes and contain underlying investment portfolios that are subject to investment risk, including possible loss of principal.
If you got off to a late start in saving for retirement, or your portfolio has taken a big hit recently, you may have to play "catch up" with your retirement savings.
Fortunately, some recent tax law changes allow workers to save far more than ever before in tax-advantaged, employer-sponsored retirement plans and IRAs. And workers who have reached their 50th birthday can save even more under the provisions for catch-up contributions.
The following charts outline the current contribution limits for employer-sponsored retirement plans and IRAs. If you're nearing retirement and your nest egg isn't big enough, now's the time to take advantage of these higher contribution limits.
Employer Plan Contribution Limits
* Includes catch-up contributions, which may not be offered by all plans.
IRA Contribution Limits
* Includes catch-up contributions.
If you've increased your savings level but still think you're going to have trouble meeting your retirement income needs, there are several things you can do: