Retirement Planning
 Budgeting For Your Future
To estimate how much you will need,
use your current budget as a starting point. Write down expenses,
remembering that they will change when you retire. For
instance, work related expenses, such as lunches, clothing, and
transportation, will be eliminated. However, you may incur
additional costs for health care or even utility bills since you may
be home more often. And with more free time, you may decide to
spend more money on a hobby or travel.
As you project your expenses, don't
forget to consider inflation. To be safe, most experts
recommend assuming a 4 to 7 percent annual inflation rate.
Economists feel this level is a reasonable estimate for the next 10
to 20 years.
Retirement Planning
Sources of Retirement Income
| There are four main
sources of retirement income: |
|
Social Security |
|
Employer Pension Plans |
|
Personal Retirement Savings
Accounts |
|
Personal Investments |
Some combination of all four sources
is essential for a secure and comfortable retirement.
Retirement Planning
Social Security Benefits
Social Security is the foundation on
which additional retirement plans can be built. Benefits are
based on your average lifetime earnings on which you paid Social
Security taxes. So the more you earn the more you collect.
Contact your local Social Security
office every three years for a copy of your earnings and tax
record. You can also ask them for an estimate of the benefit
you will receive at retirement.
Retirement Planning
Employer Pension Plans
Pensions are part of the fringe
benefit package offered to employees by most companies. Be
aware that provisions vary from plan to plan.
One thing that all plans have in
common is that they are "tax advantaged." You pay no
taxes on the contributions your employer makes in your name until
you withdrew the money. Also, any interest you earn
accumulates tax deferred until you begin to collect your pension.
Some new rules have been mandated for
retirement plans. These rules shorten the time it takes for an
employee to become fully vested. Plans must adopt either a
five year "cliff" vesting schedule or a seven year
"graduated" vesting schedule beginning with 1989.
With the "cliff" plan, you become immediately vested in
five years. With the "graduated" plan, you gradually
become vested over seven years, at which point you are fully vested.
Retirement Planning
Personal Retirement Savings
Accounts
Personal plans are defined by the
Internal Revenue Service as "qualified" retirement plans
with superior tax benefits. These include:
IRA's - If
you are not covered by any employer sponsored pension plans, you may
deduct IRA (Individual Retirement Account) contributions of up to $
2,000 per year if single and up to $ 4,000 if married. If you
are covered by a company sponsored plan, you may still contribute $
2,000 to your IRA, but the IRS may limit or not allow any
deductions, depending on your adjusted gross income.
401(k)
Plans - The amount you contribute to a 401(k) is deducted from
your gross income. Furthermore, any interest or dividends
earned are tax deferred until your withdraw your money. Contact
us for information on how much you can contribute annually.
Keoghs - Self
employed taxpayers may establish a Keogh retirement plan.
Contributions to Keogh plans are deductible and earnings accumulate
tax deferred. You may contribute up to 20 percent of your net
self employment income, depending on which type of plan you
choose. Contact
us for information on how much you can contribute annually.
Retirement Planning
Personal Investments
If you want to maintain your current
lifestyle, your own investment holdings should make up part of your
retirement income. The key is to select investments that
reduce your tax bill, while building your retirement nest egg.
Some low risk investment vehicles to from include annuities,
municipal bonds, and EE savings bonds.
Retirement Planning
How Much Money Will You Need?
Estimate that in order to retire with
financial security, you will need at least two thirds of your pre
retirement income, three quarters provides a more comfortable
margin. In any case, we recommend that you consider these
factors in your estimates:
|
The number of years you plan to be
retired. |
|
The lifestyle you would like
during those years. |
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The rate of inflation between now
and the day you retire. |
Where Will Your Retirement Income
Come From?
Americans who hope to retire with an
annual income of at least $20,000 will receive this money from the
following sources:
If determining how much money you
will need seems impossible, don't despair. We can help
you minimize the guesswork. We
welcome the opportunity to help you reach your goals.
For more information please feel free
to browse around our web site. We are always happy to answer
any questions, or to schedule a consultation contact:
Email Us or call us at 847-215-8630.
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