Let time help you build a nest egg for those golden years; Strategy: Investments such as stocks and bonds grow particularly well in a 401(k) or IRA if you start your savings plan early and stay with it.; DOLLARS & SENSE


If time is the stuff that life is made of, as Ben Franklin once wrote, it is also the stuff that can help ensure a successful retirement.

More than just about any other factor, financial planners say, the amount of time one has to save dictates whether he or she can sock enough money away for retirement in a 401(k) account, an individual retirement account (IRA) or other tax-deferred plan.

Time is such a potent factor in saving money because it allows investors to take advantage of compound interest, historic long-term gains in the stock market and simple addition, the planners say. Combine that with the tax-deferred benefits of retirement plans, and the impact is even more powerful.

"With compounding and appreciation, the more you can save the better, and the earlier you begin to save the better," said Lambert Boyce, a certified public accountant and certified financial planner at accounting firm Clifton Gunderson LLC.

Boyce and others said most people should put at least 3 percent to 5 percent of their incomes annually into a 401(k) plan or IRA before moving into stocks, bonds or other investment vehicles. With tax-deferred retirement plans, gains can accumulate without taxes being paid until funds are withdrawn in retirement -- a time when many will be in a lower tax bracket. In a Roth IRA, taxes may be avoided altogether.

"Obviously, putting the maximum amount [into a retirement plan] that you can is the best thing to do," said Ed Von Lange, a certified financial planner with the Advisors Inc., a Columbia personal financial planning firm, "because then compounding takes over and your money grows at a faster rate."

"You should always be thinking and looking to invest long term," Boyce said. "You shouldn't worry about every up and down in the market. But it depends on your life stage, and how much time you have. Obviously someone at 20 is going to invest differently than someone at 60."

But time isn't the only factor to consider when trying to wring as much value as possible out of a 401(k) plan or an IRA. Knowledge and education are also essential.

"Investment decisions often get pushed to the side," Von Lange said. "Once people become aware of what's out there and the opportunities they have, they usually take them and are able to make intelligent decisions based on their circumstances. But there's an access issue at first. Investing and saving can be intimidating."

Planners recommend that people make themselves fully aware of any program in which they choose to invest, and read the fine print. In many cases, planners say, people are unaware that employers often will match contributions.

"If an employer provides matching funds, you're ahead even before you've invested a single dollar," said Kevin Condon, a partner and director of financial planning at Baltimore/Washington Financial Advisors Inc., an Ellicott City financial planning firm. "You just can't beat that."

Many people also are relatively unaware of the penalties for withdrawing funds from retirement plans before they reach age 59 1/2.

"Penalties can be a huge problem for people, and often they don't know about them, or aren't aware of the magnitude of a penalty," Boyce said. "But still, if you have your money in a 401(k) or IRA for 15 years and have to take it out and get hit with a penalty, it's still a good thing to do, because you will have had your money invested for those 15 years."

In addition to paying penalties, the investor would have to pay income tax on the gains the money has accumulated over the years. That would negate one of the biggest advantages of the plans.

"You get a lot more bang for your buck by avoiding taxes when possible when you are putting money away," Condon said. "Five to six years of tax-deferred savings can build up tremendously."

Taxes also play a large role in determining what kind of investment to make. For instance, Clifton Gunderson's Boyce said, the self-employed are often better off investing in Roth IRAs rather than the original IRA, because of the tax implications.

But in many cases, success in saving largely is a matter of one's attitude.

"Saving should not be viewed as an expense," Von Lange said. "A lot of people look at savings that way, but once you start, it becomes easier and easier to do."

Of course, how much one is able to take out of a retirement account depends in part on how much one puts in. And in many cases, planners advise balancing savings with one's other needs.

"I recommend that you strike a balance, because at some point savings becomes a quality-of-life issue," Boyce said.

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