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Retirement Planning Advice 
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Retirement Planning AdviceIn the not-so-distant past, many Americans could count on working at a company for 30 years and then retiring with a sizeable pension. Those days are gone. Today it’s very rare for a person to work for the same company longer than five years. To expect a company-funded pension is almost laughable. The government Social Security system is, for the time being, a reliable source of retirement income. Many Americans also invest for their retirement. Beyond other forms of investment and savings, these are three primary sources Americans rely on for retirement. Government PensionsIf you worked in USA 10 or more years (with minor exceptions), you are entitled to pension benefits from the government. Monthly amount depends on your average salary and employment history, but is fairly limited.However, there is a storm brewing in the distance for the feds and Social Security system. Demographic changes in America mean that there will be fewer workers to pay the Social Security bill for a larger number of retired people. And even if the system holds, the income that workers today can expect to receive from Social Security when they retire is not likely to provide a comfortable life – at least because of inflation. The bottom line is that every American is doing whatever possible to save for old age. Fortunately, there are some excellent ways of saving for the future. The sooner you start saving the more your investments will work on your behalf. Individual Retirement AccountsAn IRA is designed for long-term savings which will one day be used to provide income after you retire. Once you have opened an IRA account, you must then decide how to invest the funds you place there. If you think of your IRA as a pie, you can divide the pie up in different types of investments, including mutual funds and individual stocks. It is always wise to discuss specific investment options with a trustworthy financial planner.The advantage of an IRA is the tax benefit. A traditional IRA allows you to avoid paying taxes on your IRA investment until you begin to withdraw those funds during your retirement. There is also the Roth IRA. In this case you will pay taxes on your investment deposits now, but you won’t pay taxes when you start withdrawing funds in your retirement years. The government limits how much money you can invest in an IRA each year. In 2008, each person with an IRA can deposit up to $5,000 annually. That means that a married couple could save $10,000 annually. A person older than 50-years of age can deposit up to $6,000 a year. The government usually increases these limits every year. Although there are some exceptions to the rule, the law imposes steep penalties (10 percent) if you withdraw the funds from an IRA before you reach retirement age (59 ½-years old). Employer-Sponsored Savings PlansMost employers offer full-time employees a retirement savings plan. These plans are separate from a personal Roth IRA, so you can save in both accounts. Employer-sponsored plans (often called “401k” or “401a” accounts) are similar to a traditional IRA and can be invested however the employee desires. In most cases there is no limit to how much you can save each year. The employer will help you establish an automatic investment each month, which can be taken out of your paycheck before you get paid. The money saved will not be taxed until you withdraw the funds. Because it’s automatic, this is a sure-fire and practical way to save. Some employers will match your investment with an equal amount provided by the company.Author: Glenn McMahan |
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Retirement Planning Advice