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Retirement Planning

It is inevitable to grow old and eventually retire. Some people would like to retire early, whereas some would like to continue working until the day they die. The question you should ask yourself is “Will I be ready financially when retirement gets here?” In order to maintain the standard of living you are used to, when you will no longer want or be able to work, you need to make your retirement plans now. Putting off your retirement planning can be a very costly mistake.

Don’t kid yourself into thinking that you will be able to comfortably live solely on Social Security benefits, when you retire. The maximum SSA benefit in 2014 is $2,642. This figure is based on earnings at the maximum taxable amount ($117,000 in 2014) for every year after age 21. Please remember that this is maximum SSA benefit you could possibly get. And truth be told, most people in the United States do not come even close to this amount. So if you're not earning a 6-digit income now, you won’t be able to live on the SSA benefits you'll receive when you retire. The most recent reports show that the average monthly Social Security benefit for a retired worker was about $1,294 at the beginning of 2014.

What are the most common retirement plans?

Now that you have learned that it is necessary to make additional retirement plans besides SSA benefits, you may be asking yourself “What plans are available for me and my family?” Here are some of the most popular options:

  • IRA’s are Individual Retirement Accounts. These accounts are savings accounts started by the individual for the purpose of having income at the time of retirement. There are two different types of IRAs:
    • Traditional IRA. This is a tax deferred account. Money contributed to this account is not taxed until it is withdrawn, and there is a penalty if withdrawn before age 59 ½ except for several well-defined conditions. There is an annual limit of contributions to these accounts based on age. For 2014, the Traditional IRA Contribution limit is $5,500 for persons under age 50 and $6,500 for persons aged 50 and over. There is further contribution limit reduction, based on an individual's income level, filing status, and participation in Employer Plan(s).
    • Roth IRA. Contributions to this type of account are made with after-tax dollars. There are no taxes incurred when you withdraw funds (waiting periods apply) and the interest earned is not taxed either. In addition, there are no penalties for withdrawal of principal contributions at any time. Contribution limits are the same as with Traditional IRAs, but if you have both types of IRA accounts, then contribution is split between the two, up to the annual limit.
  • Employer Sponsored Plans:
    • 401(k) Plans. This is the most popular and most widely used employer-sponsored plan. Contributions are made with pre-tax dollars and employers generally match contributions. Both employer contribution and interest income earned tax-deferred until withdrawal after age 59 ½.
    • Profit Sharing Plans. In this plan the employer makes all contributions. Business owners or employers decide the amount of profit they want to share with their employees and that becomes their contribution.
    • Defined Contribution Plan (DC): Under this plan the employer or the employee, or both, make a defined contribution each month. This money is invested in mutual funds or company stock. The return on this type of plan and the return at retirement depend on the performance of the investments, and therefore could be quite risky.

There are many factors to consider when deciding which retirement plan will be best for your particular situation. Consult with our specialists today and get your retirement plans in place now, to secure your financial future at retirement.

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