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Retirement Planning

IT'S ABOUT YOUR FUTURE:

There's a saying that "you can't help but think about the future because you are going to spend the rest of your life there". Retirement Planning is focused on thinking about the future and taking steps to secure it. Currently, The US population has 13 percent of people over 65 years up from 2 percent in 1900 and 6 percent in 1950. By 2040 that share of the population would be about 25 percent.

According to Biotech research firm - Human Genome Sciences, thanks to medical advances and generic engineering revolution, people might expect to live for 20 or more years after retirement, say up to 120 years.

However, increasingly the responsibility for retirement funding is shifting from businesses to individuals. According to expert analysis, in the 1980s companies dropped almost 40,000 pension plans, while adopting 401(k) and other profit-sharing plans. Through a systematic and disciplined approach, it's possible to gradually build a nest egg. Time is really of the essence in retirement planning, because its no secret that little drops of water over time can make an ocean.

Most people are hoping that social security would take care of all their needs at retirement, with the on-going discussion on the solvency of that scheme and the impending retirement of over 70 million "baby boomers", you better think again. At the current rate, experts predict that there could be $6 trillion of unfunded liability in Social Security by the year 2030. Visit Social Security to learn more about eligibility and benefit amount.

There are a few variations of retirement accounts available in the marketplace
today. Depending on whether on your employment status: working in a
not-for-profit entity, business organization or self-employed. For starters investors can utilize our free FINANCIAL CALCULATORS to project accumulation in their retirement portfolio based on their life expectancy, current contribution, lifestyle and potential rate of return.

Your retirement account portfolio can be set up to grow over time through regular and consistent contributions and by putting that money in a basket of different investment products. Experience has shown that maintaining an optimum balance of these investment products by way of "Diversification" can have the greatest impact on your portfolio performance over the long haul. You can find some helpful information about tax ramifications of retirement accounts from Internal Revenue Service (IRS).
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RETIREMENT ACCOUNTS:

  • 401(k) Plan: -- Are available for employees in for-profit entities, where they can contribute a maximum of $12,000 a year - as at 2003 and up to $15,000 by 2006. Your contributions are deducted from gross income, grows tax deferred and may be matched by your employer, which could mean more money to you. Withdrawing money before 591/2 years from your retirement could result in 10% penalty plus tax, save in some exceptional circumstances like hardship. How much money can you save in your 401(k) plan?

  • 403(b) Plan or Tax-Sheltered Annuities: -- This is quite similar to 401(k) plan but are available for employees of not-for-profit organizations. The same rules as in a 401(k) pretty much applies here too.

  • Traditional and Roth Individual Retirement Accounts (IRA): -- These are twin retirement savings vehicles, except for some tax differences. The traditional IRA can be tax-deductible for certain income earners and grows tax deferred, but when withdrawn at retirement, taxes are due while the Roth IRA is not tax-deductible, but it grows tax deferred and when you withdraw you owe no taxes. There is a 10% penalty for early withdrawal from both accounts, save for some exceptions. One can contribute a maximum of $3000 a year to these two accounts. But if you are over 50 years, there is a "catch-up" provision.

  • SIMPLE IRA (Saving Incentive Matching Plan for Employees): This is usually a form of "plain vanilla" employer-sponsored retirement plan for small businesses with few employees. The maximum contribution is pegged at $8000 a year and it's a very simple program without complicated reporting and testing requirements unlike the 401(k).

  • Keogh Plan and Simplified Employee Pension (SEP): These are retirement programs for self-employed people were they could contribute a maximum of 25% of their net income or $40,000 on a tax-deferred basis. Unlike the SEP Plans, setting up and administering a Keogh plan is more complicated and requires some professional advice.
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    Financial Tips/News is updated frequently and brought to you courtesy of Bankrate.com.

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