Investment Planning for Retirement Options...Whatablessing Reports

Nov. 19, 2011 - PRLog -- Whatablessing Reports on…Options to Investing in Retirement Plans

Do You Have Investment For Retirement Plans?
If we get this wrong, or do nothing at all - as many people do - our future lifestyle could be critically impacted. These pages look at saving options for retirement.

There are essentially two main sets of choices available about retirement planning when first starting. The first relates to getting help. Is there an organization willing to help make your retirement plans?

Many employers offer a retirement scheme to their staff. They generally perform some form of 'matching' in terms of contribution. This means that if the staff member saves (for example) 100, the company will add an extra amount. This extra amount is often equal to or greater than the amount being saved by the staff member.

The second question is, Can you make retirement savings in a low or no tax way?
In many countries, government recognizes that paying for the retirement of it's citizens is expensive. Therefore, if people are willing to make their own savings and reduce the burden on the state, their investments for retirement will be taxed at a much lower (or possibly zero) rate.

Again, the rules differ from country to country, but the general principle is that if money can be saved for retirement in a way that is tax efficient, that ought to be the first choice for the saver.

The nature of these schemes means that rules are usually put in place to prevent investors from taking advantage of them. This can often limit the range of possible investments - usually to stock market investments or collective fund based assets.
Therefore, for wealthier investors, it may be wise to investigate a mix of assets and asset classes. Some of these would likely be within a low tax pension environment and some would be outside and taxed at normal rates.

How much should I save?
It is worth understanding that funding a period of not working that may last for 20, 30 or more years is not cheap. In fact, the cost to provide such an income can easily be in the hundreds of thousands!

For many people, a retirement account of one million will simply not provide the kind of income that they were used to during their working life. Therefore, it can be said quite easily that savings for retirement should be made in the highest amount that a saver can comfortably afford.

Without trying to be negative, for most people, the amount that they need to be saving each month to provide the retirement income they hope to have is well beyond their financial means.

This is not an excuse to do nothing. It is simply a recognition that some lifestyle cuts may be needed during the working career and after in retirement.

The general advice about saving for retirement is therefore quite simple.
Start saving as early in life as you can, save as much as you can for as long as you can. The following is more information about retirement planning: In the United States

How Does A 401k Work?
A 401k is a tax deferred retirement plan offered by employers in the United States to their employees. Only an employer can sponsor a 401k for their employees. The employees decides how much of their monthly pay check they wish to deposit into this plan. This is based on what they can afford and IRS regulations that limit the amounts of contribution.
This amount is then deducted from the pay check (pre-tax) and deposited into the plan.

Quite often the employer will match the contribution up to a certain percentage, although they are not required to do so. As the contribution is deducted from the pre-tax pay and the tax on the contribution is deferred, meaning tax is payed at the time of withdrawal, it also lowers the present tax liability of the saver.

It is the employers responsibility to administer the plan in accordance with laws and regulations, they will also determine who is eligible for the plan, how much they can contribute, whether those contributions will be matched an so on. This makes the 401(k) a very easy way to begin preparing for retirement, it really requires very little effort on behalf of the individual.

If you currently have no planned retirement and your company offers a 401k it is a good idea to seriously consider it. The sooner you start preparing for retirement the more comfortable you will be. Keep in mind you may have 30 or more years where you need to provide for yourself, so the sooner you start planning for this the better. An early start is one of the keys to success.

The 401(k) does have some drawbacks, it is not a savings account and accessing your money in a hurry could be difficult or expensive. Some plans do allow you to access your funds in the event of hardship or borrow money against it, but check the details of your individual plan for the rules on this.

What Is A Traditional IRA?
This is a tax deferred savings plan originally set up in 1974 to provide a means for employees not provided with a pension plan to have a tax deferred means of saving towards their retirement. Since then employees with pension plans have also been allowed to open IRAs.

The main difference between the traditional IRA and the Roth is income withdrawn from the traditional account is subject to income tax at the time of withdrawal. This is not the case with the Roth.The traditional IRA is also more restrictive with withdrawal requirements allowing withdrawals after the age of 59 ½ and requiring withdrawals after the age of 70 ½. There are however exceptions to this, and early withdrawals can be made without penalty in the event of:

Extreme medical expense
Health insurance premiums
Death
First time home buyers
Higher education (in certain circumstances)
Equal distributions based on life expectancy
At the age of 70 ½ withdrawals are required. This amount of withdrawal is base on life expectancy. If these withdrawals are not made a 50% penalty will be charged on the amount that should have been withdrawn.
Contributions into the traditional account are tax deductible with the limits at the time of publication being $4000 for those under and $5000 for those over 50.

What Is A Roth IRA?
This is a retirement savings account that allows you to grow your retirement savings tax free. This is a very easy and very effective way to grow and shelter your planned retirement income.

The great advantage to the Roth IRA is that you only pay tax on your income once. Once the money is placed in the Roth IRA you are no longer charged tax on the growth and the capital gains on that investment.

This is where the Roth varies from the Deductible IRA. On the Deductible IRA you are taxed on money withdrawn from the account. There are some additional benefits to the Roth:
It requires no additional reporting to the IRS. Tax liability is paid up front so no additional taxes are incurred, this means no more paper work! The allowable annual limit is post tax. This mean that your $5000 limit is actually $5000, not $5000 - tax.

Great flexibility. Again all tax liability is taken care of up front meaning fewer restrictions. You also do not have to start withdrawing money by a certain age.
There are some restrictions and rules on the Roth IRA, generally (but check)
-An income of less than $116 000 per year.
-You must be single or married filling jointly.
-Maximum contribution of $5000 per year (there are exceptions to this).

The Roth IRA is a retirement account so penalties do apply for early withdrawal. The maturity date is 59.5 years old or 5 years after the first deposit was made, which ever is later. I hope this has been helpful.

Now go to http://godsmoneyfeeder.com and http://whatablessing.net for other ways to make money for an Early Retirement.

Bryce Jackson, Business Mentor, Success Coach
bryce@whatablessing.net

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