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| Retirement: What Should
I Save, When? Article by Vasrue.com |
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Who can save for retirement? It's hard enough just
keeping up with today's expenses. But like it or not,
a fairy godmother is not going to appear in your later
life to take care of you. You need to plan ahead, and
the sooner the better.
The younger you start saving, the more you benefit from
compounding, meaning your money makes money. The longer
you wait, the more money it takes to reach the same financial
goal. |
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| Generally our retirement years are funded by pensions,
personal savings and social security. A pension is a job
perk generally offering a fixed lifetime income during
retirement. Employees rarely pay into this plan, as its
fully funded by their employer. Other forms of pensions
include defined-contribution plans, which allows your
own cash contribution like profit-sharing plans, and employee
stock ownership plans (ESOPs), where employees purchase
stock from the company. So the more money the company
earns, the better the employee. (Though we all know what
happened with Enron. So use ESOPs at your own risk.) |
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401(k) retirement savings plans are possibly the best
and most convenient ways to save. With a 401(k), your
employer sets aside a certain amount of money from your
paycheck each month. This contribution is tax exempt,
so your net income isn't effected quite as dramatically
as it would be under pre-tax circumstances. Because
the money is funded before you even see it, 401(k) plans
are excellent for people with limited discipline. If
your employers offers a 401(k) plan, it's in your best
interest to make the maximum allowable contribution. |
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| If you're self-employed, you should open a Keogh plan.
This may include a profit-sharing Keogh, usually the best
to start with giving you high contribution limits and
the affiliated tax deduction, a money-purchase Keogh,
best for higher income individuals, a combination Keogh,
merging the first two options by offering the largest
contribution with the ability to pull back if money ever
gets tight, and finally the defined-benefit Keogh, offering
a fixed annual retirement income, ideal for those 50 or
older at retirement. If you have absolutely no employees,
you can also invest in a Simplified Employee Pension,
or SEP. SEPs are much like profit-sharing Keoghs, but
handled as an Individual Retirement Account (IRA). |
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| When allocating your funds, a rule of thumb is to invest
aggressively through your 20s and 30s, balancing risk
in your 40s and 50s, then remaining conservative thereafter.
Aggressive investments include large cap stocks, with
small cap and foreign stocks being a moderate, fixed income
and cash investments being conservative, low-growth options.
While allocation can be complicated, try this old trick:
Subtract your age from 100. Invest the percentage equal
to your age in bonds and the remainder in stocks. Once
you've established your ideal asset allocation, review
it annually to ensure you have the best pool for your
savings goal, income level, tax bracket and tolerance
level. |
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| So whether your 20 or 55, your retirement savings plan
is a critical factor in your overall financial health.
Plan it, review it and ensure for your security in years
to come. If you have questions or need professional guidance,
schedule an appointment with a qualified investment company. |
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