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:
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 be.
Employer Retirement Plans - 401(k)
Earnings on money within the plan are not subject to tax until they are withdrawn and employees can usually choose from a number of investment choices for how their funds are invested.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.
Take full advantage of your employer's 401(k) plan.
Individual Retirement Accounts
Contributions 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.
In addition, 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
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.
Other Personal Savings
Consider taking 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.
Social Security Retirement Benefits
At this point, there is very little, if anything you can do to change the benefits you will receive from Social Security.
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