RETIREMENT
INVESTING PLANNING
101 TIPS SAVING MONEY GUIDE STRATEGY - PRACTICAL JOB ADVICE
FINANCIAL PLAN IDEAS EDUCATION FREE ARTICLE
INFORMATION
Strategies
for saving for retirement.
INVESTING FOR RETIREMENT
People are
living to be older than they did even just a few
generations ago. As a result, they either need
to work longer or save more so they can enjoy a
carefree and active retirement.
Unless you
can count on a large inheritance, you will need
to find some way to supplement your Social
Security income or company pension.
PLANNING
FOR RETIREMENT
Social security
There is a great deal of talk about
there not being enough Social Security after the year 2047 or so. The
reality is that by that time the surplus Social Security trust is expected
be used up, and retirees will have to rely on the current workforce to pay
their Social Security.
The problem is that with a growing number of retired people that workforce will
only be able to come up with about 75% of what will be needed to support them.
This, on top of the fact that most companies are rapidly doing away with pension
plans, means that you need to take retirement savings seriously and do more than
your parents and grandparents did.
Ways to save for retirement
Three major ways to save for retirement are through a company sponsored 401k
plan, a traditional Individual Retirement Arrangement (IRA) or a Roth IRA. There
are advantages to all of them with very few minor disadvantages to some.
The first advantage is realized each and every payday. When you automatically
have money withdrawn from your pay to fund your 401k account, that money comes
from your pre-tax income. So contributing 6% of your salary does not reduce your
take home pay by as much. The contribution is tax deductible, and taxes on the
savings are deferred, meaning they don’t need to be paid until you withdraw the
money. At your retirement income, that tax rate will also usually be
significantly lower than your current tax rate. Be cautioned though that any
money withdrawn before the age of 59 ½ will not only be taxed at your current
tax rate, but also penalized another 10%.
401K Plan
One of the smartest investments for retirement is a company 401k plan. It is
wise to contribute as much as possible, especially when considering some
employers will match your contribution up to a certain percent. That is free
money, working to give you a bigger base of principle and earning you more
interest. Also, with most 401k plans you can choose how your money gets
invested. The plan administrator has many fund options such as stocks for
younger investors who have the advantage of time and can afford to take more
risks. Employees closer to retirement age can choose 100% guaranteed accounts if
they want to avoid any risk at all.
Traditional IRA
The same tax regulations apply to a traditional IRA since they are funded with
pre-tax, or tax deductible dollars. There are also maximum amounts that can be
contributed each year, $4,000 per year starting in 2005. If you are over 50, you
are allowed to make larger, “catch up” payments to your IRA each year. There are
also restrictions on how much you can contribute to an IRA if you are also part
of a 401k plan. If you and your spouse file taxes separately, then the IRA can
be in your spouse’s name to avoid some of the restrictions.
Roth IRA
The Roth IRA on the other hand is funded with post tax dollars. You will not get
a tax deduction in the year you make the contribution, but the account may never
be taxed again, including the earnings on the investment. To get to use your
Roth IRA tax-free, then you must have had the account for at least 5 years and
be over 59 ½ years of age. There are a few qualifying expenses that allow you to
use the money without penalty before retirement age. These include major medical
expenses, some education expenses and even the down payment on your first home.
Strategies
for saving for retirement.
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