Saving for Retirement
Basic considerations
♦ What kind of retirement do you want?
To a large extent, maintaining financial independence in retirement depends upon the lifestyle you want.
♦ When do you want to retire?
The earlier you retire, the shorter the period of time you have to accumulate funds, and the longer the period of time those dollars will need to last.
♦ How long will retirement last?
Keep in mind that life expectancy has increased at a steady pace over the years, and is expected to continue increasing. For many of us, it's not unreasonable to plan for a retirement period that lasts for 25 years or more. One of the best ways to accumulate
funds for your retirement is to take advantage of special tax-advantaged retirement savings vehicles, such as:
♦ 401(k)/403(b) plans -- Pretax
contributions reduce your current taxable income. Funds aren't taxed until withdrawn. May include employer contributions. These plans can also allow after-tax Roth contributions--there's no up-front tax benefit, but qualified distributions are federal income tax free.
♦ Traditional IRAs -- Can reduce
your current taxable income if you qualify to make tax-deductible contributions, and funds in the IRA aren't taxed until withdrawn.
♦ Roth IRAs -- Your after-tax
contributions provide no up-front tax benefit, but qualified withdrawals are federal income tax free. In addition to any regular income tax due, a 10% penalty tax may apply to a
distribution from one of these plans made prior to age 59½ unless an exception applies.
Start planning now
Many people assume they can hold off saving for retirement and make up the difference later. But this can be a very costly mistake. The further off your retirement is, the more time your investments have the potential to grow.
For example, invest $3,000 every year starting when you're 20 years old. If your annual growth rate is exactly 6% per year, and you retire after age 65, you will have accumulated almost $680,000 (assuming no tax). If you wait until age 35 and start saving $3,000 annually, you'll accumulate only about $254,000. And, if you wait until age 45 to start
saving, you'll accumulate only about $120,000 by the time you retire.Of course, this is an illustration only, and assumes a fixed rate of return. The rate of return on your actual
investment portfolio will be different, and will vary over time, according to actual market performance. This is particularly true for long-term investments.
Source : Kramer Financial
Many people assume they can hold off saving for retirement and make up the difference later. But this can be a very costly mistake. The further off your retirement is, the more time your investments have the potential to grow.
For example, invest $3,000 every year starting when you're 20 years old. If your annual growth rate is exactly 6% per year, and you retire after age 65, you will have accumulated almost $680,000 (assuming no tax). If you wait until age 35 and start saving $3,000 annually, you'll accumulate only about $254,000. And, if you wait until age 45 to start
saving, you'll accumulate only about $120,000 by the time you retire.Of course, this is an illustration only, and assumes a fixed rate of return. The rate of return on your actual
investment portfolio will be different, and will vary over time, according to actual market performance. This is particularly true for long-term investments.
Source : Kramer Financial
0 التعليقات:
Post a Comment