Insure Your Future by Retirement Planning

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Most people understand that insurance is not optional, and it should be an essential part of their overall financial situation. Heads of families take care to purchase life insurance in case of accident or fatal illness, and they cover their homes and valuable assets against fire and unexpected damage. Unfortunately, however, too many people do not sufficiently insure their future by proper financial planning. To young graduates just starting on a new career, retirement is in the distant future, and there seems to be no urgency to do anything about it. But the experience of others shows they are wrong.

Financial planners estimate that retirement income should be about 75% of one's working income, if a similar standard of living is to be maintained. A smaller gross income is usually adequate because of the tax component, and because the expenses associated with holding down a job, such as traveling, clothes, and work-related purchases, are no longer required. Net income, however, should be comparable to the amount received during one's working life.

An adequate retirement income is difficult to realize unless careful plans are made and implemented over a number of years. The most important advice is to start preparing as soon as possible. Many people optimistically cite 55 as a desirable retirement age, though few are able to achieve such an ambitious goal. It is interesting to note, however, that if the future retiree starts saving at age 40, he or she will need to save three times the amount required of a 25-year old planner.

Because of an increased life expectancy, workers today need to plan for a longer retirement. More and more retirees manage to have a retirement that exceeds the whole period of their working lives, and they need the funds to finance it. Retirement funds typically come from pensions, savings, and government security plans. But the onus is upon the worker to make adequate financial plans for a comfortable retirement.

Employees should always take advantage of employment pension plans when they are available. Any attempt to save money by not participating is false economy, as this source of income will be sorely missed in the future, and the advantages of the employment pension plan are well worth the cost. Not only are any payments to the plan tax deductible, but employers are usually required to make equal contributions, thereby doubling the value of the employees' future benefits.

In addition to an employment pension plan, future retirees are well advised to save in a recognized retirement savings plan. The best one available is the Individual Retirement Account, the IRA, which is a tax shelter for anyone who wishes to accumulate maximum savings for the future. Any contribution, within government controlled limits, is tax deductible. If funds are withdrawn, however, they are taxable at the individual's normal rate.

Retirees who have not made sufficient financial provision for their retirement must make other arrangements. Government pensions through social security are hardly sufficient, and they cannot provide the same standard of living that workers enjoyed during their working life. Income can be supplemented from other sources, however, especially if retirees own valuable assets such as property or insurance policies. Reverse mortgages are usually available to home owners aged 62 and older, and insurance policies can be redeemed for their cash-value or sold under a life settlement agreement. Cash obtained this way can then be invested in an annuity to provide on-going income.

Retirement is an inevitable part of a person's future. For too many, it can be financially difficult, but with careful planning, future needs can be met, and retirement can be a welcome and enjoyable period in a person's life.

Information is for educational and informational purposes only and is not be interpreted as financial or legal advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.