If you are new to the work force, you will find that there are lots of demands made on the amount that you earn. First of all there are the tax deductions, and the pension funds to pay into, and there may be a health and dentals package too. You may have car payments that come out of your account automatically, and perhaps rent or a mortgage payment. All of this takes quite a lot away from what started off as a good salary. But we're not finished yet! What about your future? Have you set up any retirement accounts ready for your retirement? No, I'm not joking, I only wish I was. If you can start making even a small contribution every month to an individual retirement account (IRA), it will stand you in good stead once your retirement happens.
I know that when you are young, and have just got your first full time job, you feel like spending your hard earned money. You may find that even without thinking about an individual retirement account your funds do not quite cover your expense each month. It will be difficult, but you really do need to think about your retirement, more so now than ever. Social security payments will not cover very much when you retire. They may not even cover accommodation, never mind if you need the services of a nursing home. It's really hard when reality hits that you cannot afford to enjoy your retirement. After all, you've worked hard for years, you deserve to be able to enjoy your retirement.
So, what is the answer to the lack of funds for retirement? It is unfortunately, to start making payments into an individual retirement account fund as early in life as possible, no matter how difficult that is. What kind of fund? Well, the individual retirement accounts with payments made through your employment generally with pre-tax dollars works well. This way you gain the benefit of paying less tax when you make the contributions. It does mean, though, that your retirement income will be taxed, but usually this will be at a lower tax rate since you will probably not have as much income in retirement.
There is an ira called the Roth IRA which works the same way as the more traditional iras, but you pay the tax up front on your contributions. Although it may mean you pay a lot more tax while you are employed, it does mean that your retirement income is not taxed, which is rather nice. It means all the money in your account is yours, less the management fees if there are any. It is something that you may want to consider.
Once you have set up your account your funds are invested in stocks, bonds or mutual funds, usually a diverse selection to reduce the amount of risk involved. However, it is possible to invest in real estate as long as it is indirectly. You have to find a custodian who knows all the rules and regulations about dealing with real estate in iras, and you must not own any of the property in your ira yourself.
It may be something worth considering since real estate generally appreciates considerably over time, and time is something that most individual retirement accounts have. But first, talk to a professional advisor to find out about all the pros and cons, and this applies whatever method of investing you are considering.
Source
Wednesday, September 17, 2008
Sunday, September 7, 2008
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.
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.
Saturday, September 6, 2008
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.
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