Don't Leave Your Retirement Planning to
Chance
Where will your retirement money come from?
Not too long ago, most working Americans could expect a comfortable
retirement paid for by Social Security and their company pension
plans. But times have changed.
- If you were born after 1960, retirement is considered age 67.
- Social Security has lost ground, weakened by inflation and an
aging population. At best, Social Security can only replace a
portion of a person's pre-retirement income.
- Company pension plans are changing too. To control costs, many
employers are shifting the responsibility for retirement planning
to their employees. What's more, today's worker is simply not
staying with one company long enough to collect a full pension.
After each job change, pension savings must start from scratch.
But, you can have a comfortable retirement. Here's how:
While Social Security and company pension plans can contribute
to your retirement income, you'll need to come up with much of your
retirement "nest egg" yourself. When it comes to saving for retirement,
you have three important allies: time, compound interest and tax-deferred
growth.
- Time. The sooner you start, the better off you'll be. Its easier
to fund for retirement over a longer period than it is over a
shorter one, so start as soon as you can.
- Compound interest is a wonderful thing. Regular contributions
to a retirement account, earning compounded rates of return, can
add up to a large sum over a long period of time.
- Tax-deferred growth is really a wonderful thing. Many financial
instruments, such as annuities and life insurance may build cash
values on a tax-deferred basis. These financial instruments provide
a triple compounding affect: they earn interest, they earn interest
on interest, and they earn interest on the funds normally used
for taxes.
- In the case of permanent life insurance, while the policy is
in force, income tax may never be required. For annuities, withdrawals
of interest earned is subject to income tax and withdrawals prior
to age 59-1/2 are also subject to a 10% IRS penalty.
Don't forget to include your life insurance in your retirement
plans
Life insurance can serve as both a tax-deferred way to build retirement
funds and a way to provide for your family if you should die. Special
riders are available for most policies to pay the premiums if you
become disabled, something most investment-type products can't do.
Getting Started
Without retirement planning, you can end up with a serious gap
between what you need and what you have. The steps you take today
can protect your lifestyle during retirement.
