Do you know how you will pay for your living expenses when you retire? If you don’t have enough retirement savings, you may have to continue working longer than you would like, or if you are unable to work, you may have to sell assets to pay bills. If you don’t currently have a plan in place, or if you haven’t given much thought to your plan, you should consider your retirement savings options.
Work Retirement Account
The first place to start any retirement savings plan is at work. Many employers offer a 401K or pension plan. If your employer offers a pension plan, you will receive a certain amount each year after you have retired. With a 401K plan you can allot part of each paycheck, before taxes, to go into your account.
If your employer offers a 401K match program, this means they will contribute a percentage of what you put into your account. This employer contribution is free money, so take advantage of it by contributing as much as you can up to the yearly limit. The limit for 2010 is 16,500. If you are over 55, you can contribute an extra 5,500.
Personal Retirement Account
Beyond a work retirement account, you should also consider a personal retirement account. Two common types are Roth and Traditional IRAs. With a Roth, the money you put in is taxed and your later withdrawals are tax free (and if you don’t need funds in a particular year, you are not required to take out any part of the Roth IRA). A traditional IRA, is tax-free contributions like your 401K.
You will also have a yearly contribution limit for your IRAs. The 2010 limit is 5,000 with a 1,000 catch-up provision for those over fifty. If you are over fifty make sure to take advantage of any catch-up retirement programs.
Social Security retirement benefits are available to any American who works for at least ten full years. Once you reach 62, you can apply for benefits. If, however, you wait until your full retirement age which is currently 65 to 67 depending upon birth year, your payment will be much larger. At full retirement age, you will receive about forty percent of your pre-retirement income.
Besides saving money, you must also focus on investing. To find good investments you can either research your options or speak with a financial advisor. Investing your savings allows your money to work harder so you don’t have to. But be careful, there is always a risk.
Levine & Furman, LLC is a member of the American Academy of Estate Planning Attorneys.