Social Security Contribute for 40 quarters Replacement rates between 59% and 24% depending on income earned Collect full benefits at designated retirement age
Full Retirement Age by Year of Birth Year of BirthFull Retirement Age 1937 & earlier65 years 193865 years, 2 months 193965 years, 4 months 194065 years, 6 months 194165 years, 8 months 194265 years, 10 months 1943 - 195466 years 195566 years, 2 months 195666 years, 4 months 195766 years, 6 months 195866 years, 8 months 195966 years, 10 months 1960 & after67 years
Check Social Security Records þSSA will automatically mail your statement of retirement, disability & survivor benefits 90 days before your birthday þUse “Requests for Earnings and Benefits Form” from Social Security office or call þ1-800-772-1213 or consult web site www.ssa.gov þSave IRS W-2 Forms
Retirement Plans Company Retirement Plans Salary Reduction Retirement Plans Individual Retirement Accounts (Traditional or Roth) Plans for the self-employed
Contributions with pre-tax dollars lowers taxable income.
Maximize benefits from your Retirement Plans $ Begin contributions as soon as possible. $ Make maximum contributions allowed, if possible. $ Choose investments that pay high earnings
Saving in a Tax Deferred versus a Taxable Account Years 10 20 30 40 Taxable Account $ 24,420 $ 59,201 $108,740 $179,279 Tax Deferred $ 26,414 $ 69,414 $139,679 $253,679
Individual Retirement Accounts Tax-deferred retirement program Must have earned income or alimony Contribute up to *:$4,000 in 2005-07 $5,000 in 2008 *Amounts shown are for individuals. Amounts double for couples.
Traditional Individual Retirement Accounts Fully deductible from income taxes if no retirement plan at work. OR May be partially or fully deductible based on Adjusted Gross Income.
Deductible IRA Income Limits Year 2005 2006 2007 Joint Return $70,000-$80,000 $75,000-$85,000 $80,000-$100,000 Individual Return $50,000-$60,000
Deductible IRA Contributions Reduce taxable income Report on 1040 tax form
Traditional Non-deductible IRA Contributions File IRS Form 8606 with Federal Tax return Retain copy permanently
Investing in Traditional IRAs Check yearly maintenance fees. As IRA grows in value see if fee can be removed. 10% penalty plus taxes on amount withdrawn before age 59 1/2.
Roth IRA Contributions made with after-tax dollars No mandatory age for withdrawals No mandatory age limit for contributions Contributions (after-tax dollars) always available for withdrawal without penalty
Roth IRA Rules Withdrawals of earnings are not taxed if… Account is 5 years old and You are at least 59 ½ or Earnings up to $10,000 are being used for first time home purchase or Higher education for self, family & grandchildren
Roth IRA Contributions Make contribution to Roth IRA until April 15 for previous year. The 5 year waiting period for tax free withdrawal of earnings begins with the year of the first contribution. Ordinary IRA funds converted to Roth IRA must remain at least 5 years or a 10% penalty will apply.
Investing in IRAs Don’t have $4,000 all at once? Consider making automatic monthly payments from checking account or payroll deduction.
Contributions held in a custodial account Accounts can be at any financial institution, bank, credit union, mutual fund company, brokerage account. Invest for high return.
Timing IRA Contributions Make contributions as early in year as possible Can make previous year’s contribution until April 15th, but tell account custodian it is for the previous year
IRAs - An Example of Return on Investment Contributions made only between ages 22-30 (9 years) $2,000 contributed each year Total investment of $18,000 At an interest rate of 9% by age 65 will have $579,471
IRAs - An Example of Return on Investment Contributions made only between ages 31-65 (35 years) $2,000 contributed each year Total investment of $70,000 At an interest rate of 9%, by age 65 will have $470,249
E. M. I. L. Y. Early money is like yeast, it helps your dough rise!
IRA Direct Transfers – transfer of IRA funds from one IRA custodian to another
Finding Money to Save One cup of coffee at $1.00/cup x 5 days x 50 weeks = $250/yr. One soft drink at $1.00/each x 5 days x 50 weeks = $250/yr. 2 video rentals/week @ $3.00 each x 50 weeks = $300/yr. One fast food meal/week @ $5.00 = $250/yr. TOTAL SAVED = $1,050/year Other ideas?
Retirement Planning Has Changed! $ More self-directed $ No “guarantees” $ Living longer $ Portable plans $ Inflation & taxation
Think of retirement as a vacation -- take half as much baggage and twice as much money!