Retirement Planning Can Be A Breeze With The Right Plan
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Where do you want to be when you retire? Will you be on an island in the Bahamas? Working in a different field? Or simply enjoying your spouse? Ninety-five percent of Americans have fears about retirement and 42% feel they will run out of money entirely, according to a 2005 study by NAVA. Just as you wouldn't go on vacation without an itinerary or a budget, you shouldn't run toward your retirement blind. With the right plan, retirement planning can be a breeze.
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When you're first getting started, you'll want to envision how you want your retirement to be. While you'll be saving money on gas and eating on-the-run, remember that there will be additional expenses -- notably healthcare -- as you age. Check with the Social Security Administration to find out what your benefits will be. Go over your employer's retirement and 401k plan. After realistic considerations, you may want to consult a retirement planning calculator.
If you're really overwhelmed, retirement planning services are your best bet. While they charge around $200 per consultation, many people find it worth the cash to save the aggravation. A more cost-efficient option is retirement planning software, such as Forbes Magazine-recommended Quicken Retirement Planner ($59), Morningstar ($125) or ESPlanner Plus ($199). Many employers offer free retirement planning software for employees. In addition, your banker, life insurance agent, investment broker, accountant or attorney can all offer assistance.
Don't rely on social security! Social security only provides for approximately one-third of the average American's retirement plan. Instead, focus on your 401k as the bulk of your retirement savings and invest as much as possible. Consider annuities as a great supplemental retirement plan. Remember, tax-efficient options are increasingly crucial in saving up that nest egg.
Contribute the maximum on your 401k! Putnam Funds did a study in 2005 that found if you earned $40,000 in 1990 saving 2% of your salary, you'd have $40,000 by 2005. However, if had you saved 6% of your salary, your return would have tripled!
Beware of inflation! Ronald Reagan once warned, "Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man." Many people forget to factor inflation into their retirement planning. Consider that a $60,000/year lifestyle will cost you $80,635 in ten years and double that in thirty years! Your investment returns should be high enough to cover this pitfall. Most pensions and social security account for inflation and adjust accordingly; however, if you plan to dip into savings accounts or investments, your money will decrease in value over time.
While it may seem overwhelming at first, all the tools are available to make your retirement planning less tedious. Whether it's a retirement planning service and personal consultant or retirement planning software, you'll find answers. You can leave the investments up to a trustee who will take the guesswork out or you may choose to take a more active role in your investments. Your best bet is to start now and make a variety of investments to ensure your golden years are truly the best.
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Today's Tip On Retirement Planning
One in five small businesses now offer an employee retirement plan. While building business and contemplating your own retirement, you may wonder: Should your business be one of them? Many owners fear an employee retirement plan will lead to large losses amid a shifting economic landscape. However, when retirement planning, you may want to consider a Simplified Employer Pension IRA. The SEP-IRA offers much higher contribution limits (up to 15% of an employee's annual income), gives employers a choice on how much money will be contributed to the general employee distribution annually (depending on how well the company does), and an easy administration process. A SEP-IRA is very similar to a 401k plan, but has lower contribution limits, easier administration and is generally a less expensive option for smaller businesses. Three potential drawbacks to consider are that: employees can't contribute directly (you're making the contribution in the employee's name), qualifying employees include anyone 21 and older with an annual income of $400 or more (part-timers included), and there is no waiting period for withdrawal (whereas vesting may encourage employee retention).
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