Now that you have landed an amazing job, lets talk about retirement plans. Although, retirement may seem lightyears away, it is important to start saving as early as possible, to allow your money time to grow. This section provides a brief overview of some plans.
Individual Retirement Accounts or (IRAs) are available for anyone to start at any time. Most financial institutions allow you to set up an IRA. The IRS sets limits on how much can be contributed to these accounts annually. Contributions to these accounts are made after taxes so that when you withdraw funds after retirement they are not taxed.
A 401(k) is a retirement savings plan sponsored by an employer. In addition, a 403(b) is similar to a 401(k), but it is only offered by certain types of employers such as, public educational institutions, certain non-profit organizations, and churches. Both types allow you to make pre-tax contributions from your paycheck, thus when you withdraw funds from these accounts after retirement, the funds will be taxed. Some employers will match a portion of an employee’s contribution to these accounts as a benefit to the employee. So employees are encouraged to take advantage of matching, as its essentially free money.
Pension plans, or defined benefit plans, are offered through an employer and provide a specific amount of income each month at retirement. This amount is guaranteed for your lifetime. Generally, the benefit amount is based on a fixed dollar amount or a formula that takes into consideration salary and years of service.
So you’ve just received an offer from your dream job and you are beyond excited (as you should be)! You begin to ponder about all the great things you will accomplish in this position and all the excitement moving to a new location brings. However, before you accept the offer you should consider the salary and how far it will go in a new city or how much it will cost to live there. The cost of living is the amount of money needed to sustain a certain lifestyle in a given place and includes basic expenses such as housing, food, transportation, taxes, and healthcare and it varies from city to city. It is important to understand the cost of living in a specific city to make an informed decision about the salary needed to support yourself.
When contemplating your offer, utilize a cost of living calculator to examine the salary versus the location. For example, a $50,000 salary in Birmingham, AL may not go as far in Los Angeles, CA. Researching the cost of living allows you to be better informed about how much you will need for everyday expenses and also prepares you with additional insight during salary negotiations. CNN Money provides a Cost of Living Calculator to help compare costs between cities.