HOW SHOULD I APPROACH SAVING FOR RETIREMENT?
If retirement is your primary motivator behind your investment strategy, then you need to have your long-term goals defined so you can effectively navigate changes in your life, your career, and the market.
Define retirement goals.
Planning your retirement isn’t something that you do overnight, it’s a process. You need to determine how much income you’ll need to live comfortably, provide adequate health care, and ensure financial security for dependents. While most researchers say that you should plan on spending 80% of your annual salary during retirement, you still need to estimate what your living expenses will be—include travel, entertainment, and recurring health costs.
Obtain guidance.
You may want to find a Financial Advisor to help you put your retirement plan in place. A knowledgeable advisor can help you save efficiently and choose investment vehicles that make the most of your retirement dollars.
Locate a Financial Advisor at a Branch Near You
Make the commitment.
Start saving as soon as you can. Set an amount that you can put toward your retirement and commit to it. In order to get your savings growing you need to look at paying yourself first. Look at setting up a Systematic Investment Plan (SIP) where you can have a specific amount of each paycheck put into a money market or savings account. You can start a SIP for as little as $50 a paycheck, so there’s no excuse for not participating.
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Choose focused funding options.
Look for all the opportunities you have to save. Besides participating in employer-sponsored pension plans or 401(k)s, open an IRA and take full advantage of the new tax law increases through 2008.
Traditional IRA
With an individual retirement account your investment is set up to grow tax deferred until withdrawn, typically after you retire.* You can establish as many IRAs as you want until age 70½, but there are guidelines to investing:
- You can contribute up to the lesser of $4,000 or 100% of your earned income annually or $5,000 if over 50.
- Married couples filling jointly can contribute up to the lesser of $8,000 or 100% of combined earned income annually.
- You can open or invest in an IRA as late as the filing date for your taxes—not including extensions.
Tax deductibility on contributions depends on your modified adjusted gross income and other investment programs you have in place. You might receive a full or partial deduction—but every little bit helps. However, the real advantage to the IRA is the tax-deferred compounding of your investment.
Wachovia Securities Traditional IRAs
Roth IRA
The Roth IRA puts a spin on the traditional IRA. The same contribution levels apply ($4,000 annually or $5,000 if you’re over age 50), but the contributions are taxed up front. Your withdrawals are made tax free after age 59½ as long as the IRA is at least five years old. Would you rather pay a little bit of tax each year or be taxed on the lump sum of your retirement savings later? Keep in mind that it’s usually easier for us to pay taxes, while we’re still employed. And, if you are under 59½, you can make penalty free withdrawals for buying a home or paying for college expenses—covering yourself, spouse, children and grandchildren.
Who can contribute:
- Singles who earn less than $99,000 can contribute up to $4,000 or $5,000 if age 50 or older.
- Married couples who file jointly and whose income is less than $156,000 a year, can contribute up $8,000, $9,000 if one of you is age 50 or older, or $10,000 if both of you are 50 or older.
- The contribution limit decreases as your income rises; single filers earning $114,000 a year or married couples filing jointly earning $166,000 can no longer contribute to a Roth IRA.
- Unlike a traditional IRA, a Roth IRA allows you to continue to contribute even after you are 70½.
Wachovia Securities Roth IRAs
IRA Rollover
When you retire or leave a company, you can move your investments with you. Consider rolling over your profit sharing or 401(k) funds into an IRA to keep your investment growing tax-deferred. You can invest in mutual funds along with individual stocks, bonds, and other investments.
Wachovia Securities Rollover IRAs
Simplified Employee Pension Plan
If you own your own company, consider a Simplified Employee Pension Plan or SEP. With a SEP you and your employees get the benefits of an IRA with higher contribution limits. Employers can make contributions to their SEP-IRAs and to those of their employees. The employee-benefit expense is also a tax deduction to the employer or self-employed individual. SEPs are great for independent consultants or real estate professionals because the contributions are much higher than IRAs.
Wachovia Securities Simplified Employee Pension Plans (SEP IRA)
Savings Incentive Match Plan for Employees
The SIMPLE IRA plan was specifically designed for small business owners. It combines a tax-deferred savings program for employees with an easy to administer retirement plan for the employer. Employer contributions and employee deferrals are deposited directly into the employee’s SIMPLE IRA. Low costs and minimal paperwork make this a very attractive option for small businesses to adopt for their employees.
Stay ahead of inflation.
Not planning for inflation can be a costly oversight; if the inflation rate is 4%, it means that prices increase at a yearly rate of 4%. For example, the same basket of goods and services that you can buy today at $1,000 will cost you $1,040 next year. Inflation cuts into your purchasing power even further during longer periods of time. A $100,000 today with an inflation rate of 4% would have the purchasing power of $82,193 in five years and $67,556 in 10 years. Don’t find your hard-earned cash waning in your golden years. Inflation gradually increases the cost of living.
Retirement Planning Guide
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