Your Financial Journey to Successful Retirement

The rules of retirement have changed forever! Whether you like it or not, you can no longer depend on a pension from your employer or expect that social security will be there when you need it most. Once in retirement, the biggest risk is running out of money and there are many obstacles along the way ranging from inflation to longer lifespan. For some, retirement is in the distant future and is lodged deep in the back of your mind as you make room for more pressing day to day issues. For others retirement might be right around the corner and has claimed such a large share of your thoughts that it’s difficult to focus on anything else. No matter what your retirement time horizon is you absolutely must develop a retirement strategy and start saving for it now. Successful retirement planning will require hard work, sacrifice, and dedication.

Let’s face it, most of us will not be getting a cushy pension and social security may be there to cover some minor expenses but will not provide you with the financial security that you and your family deserve. So what can you do to be prepared for that big day? Let’s review the various retirement vehicles available to you.

One such option is an Individual Retirement Account (IRA). Traditional IRA’s are a great choice because your contributions are pre-tax dollars that grow tax free until you withdraw the funds in retirement. Imagine the amazing result of compound interest growing tax free! This is such a great deal that the Government puts restrictions on who can contribute. Generally high earners are limited or restricted from contributing. Most folks expect that their income will decrease when they retire so in that case all those pre-tax contributions you made during your earning years will be taxed at the lower tax bracket when withdrawn in retirement. An IRA can be opened at most banks and brokerage firms.

Another great retirement savings vehicle is known as a ROTH IRA. With a Roth, you pay taxes on the contributions, but upon retirement when any withdrawals are tax free. This is an awesome option for anyone who expects his or her tax bracket to be higher in retirement then it is right now. Higher taxes in retirement may not necessarily be due to higher retirement income, they can also result due to changes in the political landscape and laws governing taxation. The scenario of higher taxes in your future is very possible so the Roth IRA is the best vehicle to mitigate that risk. A ROTH IRA can also be opened at most banks and brokerage firms.

One of the most popular and powerful type of retirement accounts is the 401k. The 401k is a lot like an IRA with the major difference being that 401k’s are most commonly offered directly through your employer. What’s so great about the 401k you ask? I have two words, employer matching. Once you are eligible for a 401k plan at work, most employers will match as much as fifty to one hundred percent of your contribution usually up to six percent of your pay. Let’s look at a simple example. You contribute six percent to your 401k and your employer matches your contribution with another six percent. That is 100% instant return on your money and a total contribution of 12% of your pre-tax pay. Since your contributions are pre-tax and are deducted straight from your paycheck you won’t even miss the money. If you are eligible for a 401k plan at work and have not yet signed up, what are you waiting for?! GO sign up now.

The Keogh plan is another type of IRA that is suitable for self employed people. Self-employed small business owners may also be interested in Simplified Employee Pension Plans (SEP). This is another type of Keogh plan that people typically find easier to administer than a regular Keogh plan. Both of these plans have similar features as the IRA with additional benefits geared toward self employed individuals.

In each retirement vehicle, you have the option of investing in stocks, bonds, mutual funds, certificates of deposit, or money market accounts. These are the basic options available in most plans. But which plan is right for you? The answer depends on your personal situation and may consist of any one or a combination of several retirement savings and investment accounts. Whichever retirement investment you choose, just make sure you choose one! Please, do not depend on social security, company retirement plans, or even an inheritance that may or may not come through! If your situation is complicated you may need to speak with a financial planner or accountant to help you with these decisions. Secure your financial future by investing in it today.