Preparing For Retirement

There are many stages that we all go through in life, and many of us often look ahead to these milestones. For example, children look forward to going to school, and long to become teenagers, then look forward to their first job, hoping it will bring with it some sort of financial security. Then there's the expectation of finding the right partner and settling down, perhaps to have their own family. After this, there are not quite so many milestones. We start to be more aware of more aches and pains as the years go by, and we start to consider retirement.

So what is retirement? Wikipedia states that it is the point at which a person stops earning money from employment, but this doesn't necessarily occur at the same time for everyone. It all depends on circumstances, mainly of health and wealth, and this is different for everyone. Retirement wasn't always an option. In years gone by, the only way to buy food was to earn the money first, so people would continue to work until they died, and this still happens in some of the poorer countries today. But with the formation of Social Services, where payment into a fund while employed means that upon retirement, you still receive some money every month, people have the option to retire earlier, some while they are still healthy, others when working becomes too challenging due to ill health. Nowadays, we can even semi-retire, that means we can perhaps stop working as many hours as we did, and take a part time job. Why do people do this? Shouldn't retirement be a time to enjoy life to its full? In an ideal world yes, but unfortunately pensions from Social Services will not always provide the standard of life we are used to. There again, some people miss work so much, that they have to "feel useful" and go back to work.

The time to retire differs not just in different countries, but for different occupations too. For some retirement happens at 65, and that's that, but the movement now is for people to make their own decision about when they want to retire, not to be told that at 65 they must retire, whether they like it or not. This makes a lot more sense, as people are living longer now, and are often in excellent health even at age 70, with many years of good employment left in them.

But what do you have to do before retirement? Throughout our lives, we are told to save for a rainy day, to save for a new car, or house, and to save for retirement. We are encouraged to contribute to an individual retirement account, in other words, put money aside every month, money that we can use when we no longer have employment income coming in. This makes a lot of sense, but I wonder, just how many young people are able to do this. In a material world like we are living in right now, the emphasis seems to be on having the latest, greatest gadget. Will this lead to problems down the road? I suspect that it will, as the elderly find they have no funds of their own to give them comfort when they are older.

Can you imagine, you have reached the age of retirement, or your health means you have to retire, but what do you do then? These days you need money for so much, not much is free, that's for sure. How will these people cope, these who have been used to getting new things throughput their lives? It will be interesting to see how everyone adjusts to this. But in the meantime, if you are able to put some time into thinking about retirement planning and put some savings into a retirement account, that would be a very good move indeed.

Do You Have Your Individual Retirement Account Already To Go?

First of all, what is an individual retirement account, or IRA as it is often called? Well, in this case, IRA does not stand for Irish Republican Army, nor does it stand for the International Reading Association, but it does have a lot to do with retirement and the investment made for that retirement! An individual retirement account is an account that is opened so that a person can save for their retirement, and as such it has benefits for that retirement over a regular savings plan. There are variations on this theme of course, and this website will provide more information about these valuable options.

So, why contribute to an individual retirement account in the first place? Contributions to an individual retirement account are made with pre-tax dollars, which means that when you withdraw funds from this type of account, the withdrawal will be taxed. However, it is assumed that this withdrawal will not take place until after you have retired, and by this time, it is expected that your income will be very much lower, so your withdrawal will be taxed at a lower rate. Because this is a savings account for retirement, you are strongly encouraged to keep your funds in this account, with the result that you are penalized should you decide to withdraw funds earlier for whatever reason.



The contributions must be made in cash, or in the equivalent of cash, as other assets are prohibited. You should know also that there is a maximum amount that you can contribute each year, and as this will be changing soon, you need to make sure that you have the latest information available. Basically for the year 2007, you are allowed to contribute $4,000 per year, or 100% of your earnings, whichever is the lesser amount, if you are younger than 50. If you are 50 or older, you may contribute $5,000 to an individual retirement plan, if your annual income is more than this amount.This is similar to the Canadian RRSP, or Registered Retirement Savings Plan, which allows Canadians to save a portion of their pre-tax income for their retirement.

So, what happens with your individual retirement account once you have deposited funds into it? This is where you need to make decisions ahead of time, and we will look in depth at this further into the site. However, basically, the custodian of the individual retirement account may, at the request of the IRA owner, invest these funds in say, stocks, bonds, or mutual funds, and this does mean that there is some risk attached to this kind of investment. As always, it is an excellent idea to talk with your financial planner before making these kinds of decisions, and make sure you are aware of the tax implications of any decision. You will have decisions like using a Roth IRA, or maybe a Simple IRA. Would a traditional individual retirement account be better, or a SEP IRA, or a self-directed individual retirement account. These are probably not decisions that you should make without the help of a financial advisor!

If you do not yet own an individual retirement account, then you need to read more, and decide if you can afford to put a little cash away each month so that you can have a more comfortable retirement. It's never too late, so dive into this site some more to help clarify some issues concerning individual retirement accounts.