Planning for the Future — What Motivates You?
The truth is there is ample motivation to make the most of retirement planning opportunities.
It used to be that Americans could count on a pension plus Social Security to get them through their Golden Years. But traditional pensions only account for an estimated 18% of the total aggregate income of today’s retirees, and Social Security accounts for only about 38%.1 Alas, the responsibility for the bulk of your nest egg now rests with you.
As you begin thinking about a comfortable retirement, consider that by most estimates you’ll need at least 60% to 80% of your final working year’s income to maintain your lifestyle after retiring. And don’t forget that your annual income will need to increase each year — even during retirement — in order to keep up with inflation. You’ll also have to consider the likelihood of increased medical costs and health insurance premiums as you grow older.
Getting a Leg Up
If this dose of reality makes you glum, cheer up — you have some allies. Investment vehicles, such as your employer-sponsored retirement plan, individual retirement accounts (IRAs), and annuities, allow you to put off paying taxes on your earnings until you begin taking withdrawals at which time they are taxed as ordinary income.
Contributing the maximum amount to your employer-sponsored retirement plan and IRA each year could help you achieve the comfortable retirement that each of us desires. Since annuities are long-term investment vehicles designed for retirement purposes, choosing the right annuity requires proper evaluation techniques by a financial advisor prior to investing. There are many benefits and disadvantages such as withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. This article is not a recommendation to buy or sell any investment. Please understand, investing involves risk and you may lose your principal.
Software is available to design scenarios and to track performance.
1Source: Social Security Administration, Fast Facts & Figures About Social Security, 2012.
About the Author: Charles Marsala is a Financial Advisor with Benchmark Investment Group with Securities offered through LPL Financial, a member FINRA/SIPC. He can be contacted at Charles.Marsala@lpl.com