Retirement Planninmg for Individuals

Most people intend to save for retirement, yet research findings indicate that Americans are not well positioned for comfortable post-work years.  Studies show that we underestimate our retirement needs and we do not save enough during our working years.

Savings for a comfortable retirement life requires understanding and discipline.  Here are some basics to get you started.

1. Determine how much you need to live in a comfortable retirement life.

   The simplified estimation is 80% of your annual income before retirement.  However, as we live longer and want to do more during retirement, this approach might underestimate your needs.  In fact, many retirees find that they have increased demands on their income in retirement, such as helping their adult children and grandchildren, more travel and increasing health care costs.  You need to have a realistic understanding of your life style.  For a general idea about how big your retirement fund should be, try this on-line calculator: http://apps.finra.org/investor_Information/Calculators/1/RetirementCalc.aspx.

2. Know how much you need to save every year to accumulate sufficient assets to retire comfortably.

   The earlier you begin saving, the smaller your regular contributions can be, because of the effect of compound interest and the longer accumulation time.  It is important to have a diversified portfolio that suits your risk tolerance level.  Learn more about investing at http://www.sec.gov/investor/pubs/assetallocation.htm.

3. Get the maximum match.

   Don't leave free money on the table.  If your employer provides a match to your contribution to a qualified retirement plan at work, make sure you contribute at least enough to get all the matching funds available.

4. Consider other tax-deductible contributions.

   Contributions to 401(k)s, 403(b)s and some other qualified retirement plans are tax deductible.  Your contribution reduce your current tax liability, while providing you with an opportunity for tax deferred growth.  You pay taxes on it when you start using it for retirement.  It is an incentive provided by government and should be considered one of the priorities in saving for retirement.

5. Take advantage of Roth IRA's.

   Contributions to a Roth IRA account are made with after-tax money.  You don't reduce your current tax liability by investing in a Roth IRA account, but money in your Roth account grows tax free, and distributions are free of tax liability.  Roth IRA's also have no required minimum distribution, making them a valuable estate planning tool.  However, not everyone can contribute to a Roth account.  Eligibility to contribute to a Roth is based on your adjusted gross income.  Please see Retirement Plan Contribution Limits 2008 for more details.