Monica writes in:
The one financial thing I haven’t done for myself yet is start saving for retirement. The problem is that I don’t ever want to retire and if I imagine a situation where I actually am retired, I just don’t want to envision it at all. I just can’t convince myself to take money away from my needs now for a future that isn’t very bright.
Monica is a forty year old single woman with a career she clearly loves. Other than the retirement thing, she has her financial house very nicely in order, with only a mortgage on a townhouse as an outstanding debt, a nice emergency fund, and a great paying job that she never wants to leave.
So why should she be saving for retirement?
I think that “retirement” is the wrong word for Monica to be using when she thinks about saving in this way.
Let’s look at what a Roth IRA actually is. A Roth IRA is an investment account to which you can contribute money each year (in whatever way you want – weekly, monthly, one lump sum). Once the money is in the account, you can withdraw your contributions whenever you’d like with no penalty – but you can’t put them back.
The big catch is with the gains on that money. If you withdraw them before age 59 1/2, you pay a stiff penalty – you have to pay all taxes on those gains, plus an additional 10% tax penalty. On the other hand, if you wait until you’re 59 1/2, you can withdraw it …