Planning for Retirement

Retirement. It can be a scary thought. You could be retired for nearly the same number of years you worked – with a big difference. In retirement, you won’t have a paycheck. You’ll get Social Security, of course, and perhaps money from an employer pension plan, but together they’ll likely make up less than 35% of the income you need. Today’s average retiree, for example, gets just slightly more than $8,000 a year in Social Security benefits. Most of your income will come from personal savings, investments – or a job. That’s why you need IRAs.

Even if you can’t deduct the contributions – and that’s not likely – your earnings accumulate tax-free until withdrawn at retirement. Result: when you’re ready to retire, your IRA will be worth much more than a taxable investment.

Suppose you contribute only $2,000 a year to an IRA: after 30 years, its value would be $167,603 (assuming a 6% annual return). Assuming that you are in the 28% tax bracket and invested the same amount over the same time period in a non-tax sheltered investment, your total savings would be $120,005, or $47,598 less! In other words, your IRA savings are worth about 40% percent more!

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Effective May 1, 2008

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