Whether you’re 21 or 51 you need to begin to understand how much money you’ll need for your retirement years. To do this, you might consider starting with what your living expenses are today and subtracting out those expenses that will no longer apply once you retire. For example, will you still have a mortgage, college savings expenses or extra mouths to feed? Once you get to this number, you need to factor in your life expectancy and inflation. As a rule of thumb, many financial experts recommend saving 15% of every dollar earned. When beginning this process, the help of a trustworthy Financial Advisor will be extremely helpful!
In a recent post, my friend “Ramblin Randall” discussed some basic IRA (Individual Retirement Account) options. The details that Randall provided will be very helpful in understanding the differences between plan types. The IRA, however, is just one piece of the puzzle. To completely understand the options that are available, we must also touch on Social Security and Employer Sponsored Savings Plans.
A retirement plan that depends entirely on Social Security Benefits will never be enough to comfortably maintain your current lifestyle. Because of this you’ll need to plan to supplement your Social Security Benefits with other savings plans like an IRA, 401(k) or investment account.
Since Randall has already covered the details of an IRA, I’ll focus here on the Employer Sponsored Plans, more commonly known as 401(k) and 403(b) plans. If your employer offers a tax-deferred plan, sign up today! When you enroll, you’ll contribute a percentage of each paycheck and, if you’re contributing enough, your employer may even offer matching contributions. At tax time, your taxable income will be the difference of what you actually earned vs. what you contributed to the plan. This is an immediate tax benefit that you can take advantage now!
This was certainly not meant to be an all-inclusive guide to retirement planning. I do hope that it got you thinking about your retirement goals and savings strategy. If you want to see how your current plan is doing for you, I’d suggest a visit to Kiplinger’s Retirement Savings Calculator. For a more customized plan, I’d also suggest spending a few of your hard-earned dollars on the advice of a Financial Planner. This investment will surely pay for itself come retirement!
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.