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Improve the Outlook of Your Future: Start a Retirement Fund

The first step in planning for retirement is to begin saving money NOW. The sooner you begin investing, the longer your money has to work for you. Retirement planning doesn't have to be complicated or painful. You can start by making automatic deposits of five percent of your paycheck.

Saving regularly leads to investing regularly. Buying investments regularly and in all kinds of economic climates helps to lower average cost, allowing you to buy more when the price is low. You should increase your savings amount each year by at least a percent or two of your salary.
 
What is a 401k?
With social security on a downturn, it's important to have the foresight to set up a retirement plan now. These days 401k's and IRAs dominate retirement plans in the business world. Rather than putting your money in a single type of investment, divide your retirement investment between both.

401k's are probably the most common form of retirement plan. With this type of investment plan, the employee puts a certain percentage of his or her paycheck into the fund, typically matched by the employer. The good news for employees is that the percentage is taken from the pre-tax salary. The funds grow tax-free until the money is withdrawn.

Further benefits include the fact that you can transfer 401k earnings if you change jobs. Because these funds are an investment plan for your retirement, they are protected by pension laws. One of the major negatives to be aware of when considering a 401k is the fact that withdrawing your money before the age of 59 can be quite a headache.

The Wonderful World Of IRA's
IRA actually stands for Individual Retirement Account. There are two major types of IRA's, Traditional and Roth.

A Traditional IRA allows you to save money in a special account wherein tax payment is deferred until withdrawal. This account can act as one big investment that can be put into a mutual fund, CD or a comparable account. The major catch is that you can only invest $3000 into your IRA account in a given year. While this is a limiting restriction as compared to a 401k, you can have both an IRA and a 401k at the same time.

A Roth IRA is set up for people with certain income limits, meaning the more you make in a given year, the less you are permitted to feed your Roth IRA account. The biggest difference for the contributor is that the money contributed is from post-tax salary. As a result, no tax penalties are involved when the money is withdrawn.

Which One Do I Choose?
The truth is, 401k's are still the most popular because it takes the funds directly out of your paycheck and your employer matches it. This basically gives you free money, as opposed to an IRA that requires more individual interaction and research.

The individual participation in IRA accounts and the fact that you can have one on top of your 401k has made it a popular option. The way you divide up your retirement investments is up to you. However, keep in mind that the sooner you look into your retirement plan options, the better off you'll be.