Retirement
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As stated before contributing to tax-deffered savings plans can help you when the taxman comes calling. The government entices people to save for retirement by allowing pre-tax contributions. Because it is pre-tax it will affect your bottom line of how much money you will take home.
Take two people: both gross $75,000. One sets aside 8% ($6,000) of pre-tax wages in a brokerage account while the other contributes 8% to a 401k at work. Both save the same amount of moeny, but the one contributing to the 401k takes home almost $2,000 more per year. That can make a big difference in the short and long term.
Written by mike on September 10th, 2006 with no comments.
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When you consider your retirement savings you need to forecast the withdrawal rate. You need to look at the portfolio mix, how long you plan to withdrawal from the portfolio, how much risk you want to take on, and spending patterns.
At retirement a 50% stock and 50% bond portfolio is not uncommon. Let’s say your retirement savings is $500,000 and you retired on December 31, 1972. Obviously, the higher the withdrawal rate the greater the chance of potential shortfall. If you took out 9% you would be out in 1981 and 1982 if you took out 8%. But as the withdrawal rate drops the longer your money lasts. At 7% withdrawal rate you would reach 1984. At 6% you last almost to 1988. Finally at 5% you last until 1994.
So by examing this you can tell how much you will have and for how long.
Written by mike on August 7th, 2006 with no comments.
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It is almost impossible to avoid taxes with most investments, but taxes can be deferred. Deferring your taxes can profit you substaintially over the long term.
IRAs, 401k, 403b, Keogh plans and tax-deferred annuities are all examples tax-deferred investment vehicles. Tax-deferred plans work by allowing interest, dividends and capital gains to accumulate without incurring taxes. Taxes are due when the investment is sold (once withdrawls begin).
Let’s say you invest $10,000 in a taxable and tax-deferred account. There is not much of a difference over ten years–approximately $50,000, but once you get to 20 years it is around $80,000 and at thirty years it is about $175,000.
Written by mike on August 4th, 2006 with no comments.
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Another important aspect of investing in your retirement is tax-deferred plans are allowed to be deducted from your paycheck before the goverment takes out any taxes. Pre-tax contributions to a retirement plan will often reduce the amount of taxes you pay each year.
The government wants to encourage citizens to invest in their retirement and this is a main reason why you can make pre-tax contributions to your qualified reirement plan. This benefit might increase the amount of money you keep after taxes and savings are considered.
An example of this benefit would be to assume you make $75,000 annually and you set aside 8% of your pre-tax wages per year for retirement. Another earning the same amount and same contribution contributes 8% of pre-tax wages per year to a 401k plan at work. Both invest the same, but the pre-tax investor will tax home earnings of almost $2,000 more a year.
Written by mike on August 2nd, 2006 with no comments.
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One of the most important benefits of investing in a 401k plan at work is the potential for your employer to match a certain percentage of your contribution. Many 401k allow employers to contribute to the particpant’s account, but not all. The amount is usually represented as a specific percentage of the your contribution to the plan. For example, if your employer has a 50% match then for each dollar you contribute your employer would contribute $0.50 to your account.
If you take that example and draw the amount in your account over 20 years with and without a match you will see the huge diiference between the two. If you put in $100 at the end of each month into your 401k and your employer matched 50% the growth over 20 years (1980-2000) would almost be $240,000. Whereas it would be almost $160,000 if there was not employer match.
So take advantage of your employer’s match and put in as much as you can because it is free money and the growth of that money will help you towards your retirement.
Written by mike on July 31st, 2006 with no comments.
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Do not depend on Social Security as your only retirement income.
- You cannot count on that money even being there
- Retirement age will be increased
- People who depend on it today as their only retirement income are living in near poverty
- If you are not in an some sort of qualified retirement plan it will be difficult to meet your retirement income needs
- If you have no post-retirement wages the potential for shortfall in your retirement planning may be even greater
To ensure a comfortable lifestyle during retirement, it is necessary to establish and maintain a savings plan that will bridge the gap between the income needed to retire comfortably and the income Social Security provides. Your 401k plan is essential to helping your financial future.
Written by mike on July 30th, 2006 with no comments.
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Company-sponsored 401k plans can be very beneficial to your retirement. The following are some advantages to participating in your company’s 401k plan.
1. Participant Control:
- You get to decide how much you will invest each pay period up to the IRS’s annual limit
- You get to choose how to invest your money
- The assets in your 401k plan belong to you, so you take your vested accumulated plan assets with you if you leave the company
2. Pre-tax Investing:
- The funds you contribute to your 401k plan is deducted from your paycheck before income taxes are considered. This will allow you to reduce the amount of taxes you pay
3. Tax Deferral:
- You owe no taxes on the 401k investments until you withdrawal it from the plan.
4. Tailored Investment Plan:
- You can customize your plan to meet your needs according to your age, time horizon, wealth objectives, and risk tolerance
Written by mike on July 27th, 2006 with 1 comment.
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We have gone over what you need to prepare in case something goes wrong, but let’s also discuss what you need to ask your parents to make sure they have prepared you.
- Do you keep a budget? Make sure they know where the money will come from and where it will go.
- Do you have a will? If they do, great, but make sure it is up-to-date. If not make sure they prepare one as soon as they can.
- Do you have enough money in your retirement accounts? Find out where their retirement money will be coming from and if it will last them 20-30 years of retirement.
- Where are all your important documents? If they hide them and you do not know where they hid them prepare to search for a long time.
- Are you financially prepared for certain scenarios? Assisted-living, in-home nurse, etc can be costly. Think about long-term care insurance.
- Who will make medical and financial decisions if you cannot?
Written by mike on July 25th, 2006 with 1 comment.
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Investing during retirement is different than investing for retirement. When you retire your investment objectives change to generating income and have enough money to live the rest of your life.
Some things to consider:
· How much can I safely withdraw?
· How can I make my retirement money last until death?
· How do I handle inflation?
· How do I transfer money to my heirs efficiently?
Some potential problem issues to consider:
· Fixed dollar withdrawal programs increase your risk and becomes a serious problem if a market decline.
· You might live until your 90s or older; how can you be ready for that financially?
· Inflation will never completely disappear so expect it.
· Taxes are a retiree’s worst problem for returns.
· You have to be prepared to watch your spending carefully.
· At age 70 ½ you must deplete your retirement accounts: how do you handle the influx of money?
If you plan accordingly, you will feel safer about your retirement. With no plan you can lose control of the situation during retirement because there are some many factors that there is no way to control. There is no comprehensive plan to follow; you must assess your situation individually so consider these factors and more when investing during your retirement.
Written by mike on July 3rd, 2006 with no comments.
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SIMPLE IRAs are another retirement planning option for small business owners. Owners can to make contributions toward their employees’ retirement and their own retirement with a SIMPLE IRA. Here is some important information regarding SIMPLE IRAs:
- Any business with 100 employees or less is can have a SIMPLE IRA
- IRS forms 5304-SIMPLE or 5305-SIMPLE is used to set up a SIMPLE IRA
- The company must allow all employees to participate
- The company must give information to all employees regarding the SIMPLE IRA
- Each eligible employee may make a salary reduction contribution and the employer must make either a matching contribution or a non-elective contribution
- Employees can defer up to $10,000
- Employers must match dollor-for-dollar up to 3%
- Employers can decduct all their contributions on their taxes
Written by mike on June 21st, 2006 with no comments.
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