Most people identify
a financially secure retirement as one of their primary financial goals.
As you begin your financial life, retirement may seem to be far over the
horizon and not worth thinking about. However, by spending a little bit
of time now and doing some relatively easy things, you can put yourself
on the road to a financially secure retirement.
You will have
four sources of income when you retire:
Retirement Accounts (IRAs)
- Other Personal
- Social Security
The future of
the Social Security system and the benefits you may receive may
be open to question, but you have control over the first three listed
above. By starting early and making a few wise decisions, you can
determine the type of financial lifestyle you will enjoy during
your retirement years, regardless of far in the future that may
Retirement Plans - 401(k) Plans
Most large companies and many others provide a retirement plan as
part of their overall employee benefits program. Plans known as
401(k) plans have become popular and relatively common. With this
type of plan, employees contribute a portion of their wages to the
plan (reducing their taxable income) and their employer usually
matches some portion of what the employees contribute. In other
words, the company helps fund your retirement and you get a tax
money within the plan are not subject to tax until they are withdrawn
and employees can usually choose from a number of investment choices
for how their funds are invested.
There are limits
on how much can be contributed, but recent tax law changes have
significantly increased the amounts that can be accumulated in corporate
retirement plans, especially 401(k) plans.
deferral limit - $18,000 for 2015.
contribution limit for those ages 50 and over - $6,000 for 2015.
- Maximum total
contribution limit (employee and employer) - $53,000 for 2015.
Take full advantage
of your employer's 401(k) plan.
- Be sure to
participate in a 401(k) plan if one is available.
as much as you can to your 401(k) plan.
- Try to contribute
enough to get the full employer match.
- Review your
investment options and choose wisely.
Retirement Accounts (IRAs)
Anyone with earned income can contribute to an IRA to supplement
other retirement planning savings. Both regular IRAs and Roth IRAs
provide for the tax deferred accumulation of funds within the accounts.
to a regular IRA may be deductible if you do not participate in
an employer sponsored retirement plan or if your income does not
exceed certain levels.
Roth IRA contributions
can be made by individuals with income below certain levels. Contributions
to Roth IRAs are not tax deductible, but Roth IRAs provide an additional
benefit of their distributions not being subject to income tax and
there is more distribution flexibility.
individuals ages 50 and over can make additional annual contributions.
Here are the contribution limits for both regular and Roth IRAs.
Roth IRA and
Regular IRA Contribution Limits
contribution limits for those age 50 and over
If you can afford
it, add to your retirement nest-egg by funding your IRA every year.
Annual contributions of even $1000 can make a big difference down
the road. Time is on your side.
Another source of retirement income will be your other savings.
Accumulations in savings accounts and investment accounts, while
not enjoying the tax preferences of 401(k) plans and IRAs, are still
a major component of most individuals' retirement income. Saving
more and earning more on these funds can add greatly to your retirement
advantage of automatic savings plans with monthly transfers to a
savings account or investment account. Be sure that your investment
strategy is sound, with consideration given to your goals, your
time horizons and your risk tolerance.
The Social Security system has played a major part in Americans'
retirement planning for decades. The current examination and debate
over the future of the system will probably produce some changes
for future retirees. Here are some basic facts you may want to remember:
- Full Retirement
Age - the age when you can start receiving "full" benefits
is gradually moving from 65 to 67.
- Early Retirement
Age - at age 62, you can start receiving a reduced retirement
- Average Retirement
Benefits for retired couples for 2015 - about $2,176 per month.
- Maximum Retirement
Benefit for retired workers at full retirement age for 2015 -
about $2,663 per month.
At this point,
there is very little, if anything you can do to change the benefits
you will receive from Social Security.