SAVING FOR RETIREMENT

How much do you need How much do you already have How much time do you have to save These are the questions that lead you to a saving plan. A well-thought out and diligently followed plan leads you to your goal. This section walks you through the major steps in planning for your post-retirement financial needs. 

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You now have the information necessary to determine your savings goal between now and retirement. This is the difference between Total Savings Required at Retirement and Net Savings for Retirement in Future Dollars. 

Approximately how many years worth of income should Daniel plan on saving for retirement ... 

Once Daniel starts saving for retirement, what would be the most appropriate investments for him to make—stocks, bonds, 401 (k), IRA, or savings accounts What factors should he think about before deciding where to invest his retirement savings ... 

Everyday applications of annuities include house, automobile, and other loan payments (installments), where the total amount paid back over the loan period includes not only the principal (original amount of the loan), but also interest, sometimes in substantial amounts. Those saving for retirement put payments into an annuity over a period of years, with interest added to their payments. Upon retirement, retirees receive periodic payments over a specified period of years, with the unpaid amount at any period still accumulating interest. Periodic payments are also made to life insurance policies. Other kinds of annuities are created for corporations to accumulate capital, perhaps for building a new chemical processing plant. 

An IRA is an investment vehicle available to most individuals to save for retirement. The benefit is that the interest is not taxed until you withdraw money, and most retirees are in a lower tax bracket than when they worked. Under current laws, the maximum annual contribution is 4000 until age 50 and 5000 thereafter, including the year one turns 50. Suppose that you make the maximum... 

Because bonds typically have a predictable stream of payments of interest and repayment of principal, many people invest in them to receive interest income or to preserve and to accumulate capital. If you are looking for current income, you will most likely be interested in bonds that pay an interest rate that stays fixed until maturity with interest that is paid semiannually. However, if you are saving for retirement or a child s education or other capital accumulation goal, you may wish to consider investing in zero coupon bonds which do not have periodic interest payments. Instead, they are sold at a substantial discount from their face amount and the investor receives one payment— at maturity—that is equal to the purchase price (principal) plus the total interest earned, compounded semiannually at the original interest rate. 

People who experience the most success in saving for a financially secure retirement follow some specific guidelines. See if you are guided by a successful strategy. 

Tax laws encourage you to save for your retirement. But these same laws penalize you severely if you don t follow the rules. Tax-deferred retirement savings are meant to be used during your lifetime and the lifetime of your qualified beneficiary. To avoid being penalized, you must not take out too much or too little, too soon or too late. These restrictions may encourage you to take out more than you need or less than you would like to. 

Describe factors that influence the amount of money needed for retirement. Compare and contrast methods of saving money for retirement. 

Assuming that Daniel will practice pharmacy for about 40 years before retiring, when would be the best time for him to start saving for his retirement ... 

Mr. Smith s son [4]. John Smith, Mr. Smith s son, is really impressed with his dad s savings, and he would like to start saving for his retirement. Little John is ambitious and wants to have 1 million for his retirement within 40 years. What should be his monthly deposit at the same interest rate (0.7 %) ... 

Perhaps more important than state law, however, in determining one s legal rights under a pension plan is ERISA—the 1974 Employee Retirement Income Security Act. ERISA, by altering the requirements which employee retirement benefit plans must meet in order for an employers contributions to qualify for tax deductibility, has standardized private pension plans in ways most favorable to covered employees. Tax savings and protections are also available under either a qualified group retirement plan or an H.R. 10, Keogh, or I.R.A. plan wherein an individual may set up a tax-deferred retirement fund for himself. 

Heston, Charlton. My Crusade to Save the Second Amendment. American Rifleman, vol. 145, September 1997, pp. 30ff. Heston, newly elected president of the NRA, explains why he came out of retirement to participate actively in the fight for gun rights. 

The place to begin an analysis of what you need to do for a financially secure retirement is to look at your finances today. This will give you insight into how you are spending your money, whether you re getting ahead, and how much you ve been able to save. 

The amount of personal savings you will need to fund your retirement depends on several variables including inflation, return on investments, and how long you will live. You already have an assumption about inflation. You should continue to use this number. You can expect investment returns to exceed inflation by 3-4 percent. You can be conservative and add 3 percent to your assumed inflation rate or be optimistic and add 4 percent. You can estimate your life expectancy from Table 3, which is based on the IRS life expectancy tables. A brief look at the table shows that for planning purposes, it is reasonable to plan to age 90 unless you have reason to adjust this number either up or down. 

Table 4 Factors for Estimating Savings Required at Retirement Years of Retirement Net Rate of Return ...

If you plan to retire before you re eligible for immediate Social Security benefits, you need to provide additional savings to help meet your income needs until you qualify for Social Security. Typically, those retiring before age 62 find it to their advantage to begin drawing benefits at age 62, or the earliest age at which they qualify. For workers born before 1938, age-62 benefits are 80 percent of the age-65 full benefits. Workers born in 1938 and later qualify for full benefits at a later age. 

Table 6 Factors to Estimate Savings Needed to Provide Social Security Equivalent for Early Retirement...

Delay retirement a few years to allow more time to add to your savings and reduce the number of years for which you need to provide. 

If your retirement savings is 250,000 or more, you should consider professional money management. A professional money manager will handle your investment account according to your instructions. You will pay a fee for this service, but the benefits may be well worth the cost. 

As you consider a spending plan for your retirement savings, you must be aware of several tax rules. A qualified tax accountant or attorney can guide you through this maze of taxes and penalties. 

Designation of Beneficiary. Life insurance proceeds, U.S. savings bonds, and balances in employer retirement plans, Individual Retirement Accounts, or Keogh accounts pass directly to named beneficiaries. The asset is not subject to probate but is included in the estate for tax purposes. Also, bank accounts can have a pay-on-death person named to receive the proceeds of the accounts after your death. 

Pension Plan The firm offers a pension plan to qualified employees. In this case, in order for a Y to appear, the editors believe that the employer offers a defined benefit or cash balance pension plan (see discussions below).The type and generosity of these plans vary widely from firm to firm. Caution Some employers refer to plans as pension or retirement plans when they are actually 401(k) savings plans that require a contribution by the employee. 

Bonneville Power Administration offers its employees health care retirement and savings plans subsidized public transportation child and eldercare and on-site fitness centers at Portland and Vancouver locations and fitness reimbursement programs for field employees. 

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