Ideally, you should start saving for retirement from the time you earn your very first pay check. For persons who are employed with an organization that offers a 401(k) program, saving for retirement is almost automatic since the option to enroll in such a program is usually offered upon employment.
However, for persons who are self-employed, saving for retirement may take a little bit more effort on their part since they actually have to seek retirement planning services on their own initiative. Self-employed individuals are not eligible for 401k plans, but they have the option of opening an IRA (individual Retirement Account) to save towards retirement.

Retirement Savings for Employed Individuals

Most employed persons will save for retirement by opening a 401(k) account that is managed by their employer. The 401(k) plan is usually offered as an added incentive to the offer package of a new employee. However, if it is not offered, you must be certain to ask your employer whether they offer such a plan as soon as possible and enroll right away if they do. It is very important that you start saving early for your retirement. This will give you more time to save and you have the opportunity to put aside more funds. In addition, due to the compounding effect, the longer you save, the more interest and returns you will accumulate on the savings that you have set aside.

With a 401(k), you agree to have your employer automatically deduct contributions from each pay check and to invest the funds in a 401(k) account towards your retirement savings. Many employers will match your contributions which means that you will receive help in saving towards retirement. If you contribute $300 per month to a 401(k), your employer may contribute another $300 on your behalf, or they may contribute a percentage of it, depending on the employer’s policies. This is a great benefit and will help you to achieve your retirement savings goals in a much shorter time frame. Ideally, you should contribute the maximum amount so that your nest egg will grow bigger faster. However, if you can’t afford to do that in the beginning, you can start small and you have the opportunity to increase your contributions over time. If you change jobs, you can always roll over your 401(k) from one employer to the next. Avoid the temptation of cashing out your 401(k) before retirement.

Retirement Savings for Self-Employed Individuals

Individual Retirement Accounts are great savings tools for the self-employed. With IRAs, there are IRA contribution limits and so you may make maximum contributions of $5,500 per annum if you are below 50 years old, and up to $6,500 per year if you are 50 or over. You have the option of opening a Roth IRA or a regular IRA. With a traditional IRA, your contributions are deducted before taxes, which reduces your tax liability. Also, contributions are not taxed until withdrawals are made during retirement. With a Roth IRA, contributions are made after taxes and withdrawals are not taxed during retirement, when most persons are in a higher tax bracket.