Enjoying a comfortable retirement may be your most important long-term financial objective. This objective requires that you take the time to assess your goals, make a plan for achieving them and put your plan into action.
The first step in creating a retirement plan is to evaluate your goals for retirement and determine how you would like to spend those years. After evaluating your goals, then you can focus on the realities. Consider that you may spend 20 to 30 years in retirement. Married couples should keep in mind that some of those years might be spent alone. In addition, medical expenses and the need for long-term care are possibilities that you may need to prepare for financially.
Once you’ve established your expectations for retirement, find out how much money it will take to meet them. Print out this worksheet to estimate how much money you may need in retirement.
You’ll also need to take into account the impact inflation will have on your retirement savings. As prices increase over time, the amount of money you will need to maintain your current lifestyle will also increase. For example, if inflation has an annual rate of 4%, today’s $100 will equal $222 in 20 years, $331 in 30 years and $495 in 40 years.
There are many different types of plans that allow you to save for retirement. Some retirement plans are offered through your employers, others are available to small-business owners and employees, and still others are individual plans. The following can help you determine which retirement plans are available to you and which of those can best help you pursue your retirement goals.
To find out more about these and other retirement options, schedule a free financial consultation with a Golden 1 Financial Consultant by calling 1-877-GOLDEN 1 (1-877-465-3361), follow the prompts to Financial Services.
Mid- to large-sized companies have pension plans to help fund employees' retirements. Usually, these plans are financed by the employer and paid to eligible employees. Since it requires no contributions from the employees, a pension plan is essentially a source of free money. The distributions to retired employees are often based on a formula that calculates the years of service, average wages and the percentage of wages. While the money may or may not be enough to support you through retirement, participating in a pension plan can reduce the amount you will need to set aside.
401(k) plans are one of the most common employer-sponsored retirement plans. With a 401(k), employees elect to have a portion of their pre-tax salary set aside into investment accounts. The employees decide the amount of risk and choose from the available investment options in the 401(k) plan. Other plans such as the 403(b) plan, provide benefits similar to the 401(k) plan. The 403(b) plan is available to employees of certain tax-exempt private organizations, public schools and colleges.
The money in your account accumulates untaxed, having the potential to grow more quickly than if it were regularly reduced by tax payments. Additionally, your employer may contribute matching funds to your 401(k) account.
If your employer offers a 401(k) or 403(b) plan, it’s a good idea to contribute as much as you can up to the allowed limits. Tax-deferred growth, re-invested earnings and matched contributions may add up to a major source of income in retirement.
Profit sharing allows an employer to distribute some of the company’s earnings to its employees. While the plan is a way for a company to reward its employees for their part in a company’s success, contributions can be made even if the business earns no profit. The employer determines the amount of contributions, establishes rules for eligibility, and prepares a vesting schedule. The contributions are invested and accumulate tax-free until distribution to eligible employees.
Simple Employee Pensions (SEPs) are typically offered by small business owners. Employees open an Individual Retirement Account (IRA) and the employer makes contributions on behalf of the employee. The contributions are tax-deductible for employers and, as with a traditional IRA, investments grow tax-deferred. Employees may have the option to contribute to the SEP IRA as well.
A Savings Incentive Match Plan for Employees (SIMPLE) IRA is set up by small-business owners for their employees. Each eligible employee may make a salary-reduction contribution. The employer may make either a matching contribution or a non-elective contribution to their employees’ accounts each year. No other contributions may be made under a SIMPLE IRA plan.
A Traditional IRA is a retirement savings vehicle available to anyone under the age of 70½ who receives earned income during the year. The money you place in this account can be invested in savings or term-savings certificate accounts, mutual funds, stocks, bonds or other investments. Contributions may be tax-deductible, depending on your circumstances, but the money does grow tax-deferred.
The Roth IRA allows you to make non-deductible contributions. Like a Traditional IRA, your money grows without current tax liabilities. The difference between Roth and Traditional IRAs is that after the account has been open five years and the owner is at least 59½ years of age, the distributions are tax-free. Eligibility for the Roth IRA is limited by your income. Consult with your tax advisor or attorney for your individual situation.
Upon leaving your job or retiring, you may consider a rollover IRA, and transfer your employer-sponsored retirement funds into the account. A direct rollover allows you to avoid immediate taxation and penalties, while allowing your money to grow tax-deferred in the IRA.
Golden 1 Financial Consultants1 are experienced in helping you determine what your long-term investment objectives may be, what your level of risk tolerance is, and what types of investments are most appropriate to help you achieve your goals. Take the time to discuss your goals with your financial consultant to help you make the right decisions for your individual financial needs. Ask a Golden 1 Financial Consultant how they can help you with the following:
Schedule a free consultation with a Golden 1 Financial Consultant by calling 1-877-GOLDEN 1 (1-877-465-3361), follow the prompts to Financial Services.
1 The Financial Consultants of Golden 1 Investment Services are registered representatives with LPL Financial. Securities offered through LPL Financial, Member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. LPL Financial is a Registered Investment Advisor. LPL Financial is not affiliated with Golden 1 Credit Union nor Golden 1 Investment Services.
The LPL Financial registered representative associated with this site may discuss and/or transact securities business with residents of all 50 states.
2 You are advised to seek advice from your own tax professional and attorney.
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