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Retirement Planning

Retirement Planning

Retirement planning is something many don’t think about until they’re past time to make the most of the opportunities available. Retirement planners agree that in order to enjoy the same lifestyle in retirement that you do now you will need 70-90% of your pre-retirement income. The best part is that it’s really never too late to start, or, as the old saying goes, “better late than never”. Here are some ideas to help you with successful retirement planning at any age.

Invest in art, movie memorabilia, jewelry, etc if you enjoy collecting such things. Using the niche market place of movie memorabilia gives you some idea of how such collecting can pay off. You will be amazed at what some serious collectors will buy or sell movie posters for. There are collectors who are willing to pay over over a $1,000,000 annually to buy old movie memorabilia. Original vintage movie posters, photos, and movie memorabilia from the 1900s – 1970s can bring in big bucks. If you have vintage movie posters and you decide to go this route be sure to get the posters appraised by a reputable person. You might even want to sell through an appraiser rather than auctioning memorabilia online or at auction houses. Most folks however, do not have the quality art, vintage movie memorabilia, antique jewelry to sell so this route is probably for a very few individuals.

Most retirement planning specialists will tell you that one of the first keys to successful retirement planning is to start early. It’s simple, the earlier you start saving for your retirement, the more money you will have due to compounding of dividends and interest. The difference can be startling. If you started saving at the age of 40, you’d have to save over three times the amount of money that you would have if you had started at the age of 25 to have the same amount of money at age 55.

Experts agree that you will need three main sources of retirement income, your Social Security, your pension, and your personal savings, (profit sharing, IRA’s, or 403 (b) plans). Max out your employer sponsored retirement plans. These are a great way to save for retirement. Along with the immediate tax savings these offer, many employers offer incentives such as matching a percentage of contributions. IRA’s (individual retirement accounts) are also excellent ways to save for your retirement. This money is put away pre-tax. When you withdraw this money at retirement time, you are in a lower tax bracket. The downside of IRA’s is that you cannot use this money before a certain age without significant tax penalties.

Due to an increased life expectancy you will need to consider safe ways to continue to build your wealth even after you retire. Money market funds are a good way to do this and have little risk of going down in value. Most financial planners suggest having six months of normal expense money set aside (this is for any age) in case of emergency.

Some seniors opt for what is called a reverse mortgage. A reverse mortgage can be a large part of retirement planning. This is where a homeowner, 62 or over, can convert part of the equity in their home to tax-free income without having to give up title or sell their home. The amount of a reverse mortgage is based on many factors, your age, appraised home value, current interest rate. The money can be paid to the homeowner as a lump sum, in fixed monthly payments or as a line of credit. Mandatory credit counseling is required before applying for a reverse mortgage.

Some use annuities to help cushion retirement. Annuities are contracts issued by life insurance companies that guaranteed periodic payments for life. You buy deferred annuities throughout your working years. The funds accumulate tax deferred.

Get Rich Slowly

Is it hard to get rich? If you’re young, not really. Its fun to play with financial calculators and see what might happen.

If you have just graduated from college and are about 22 years old and if you put $100 a month in an IRA that grows at 10% a year, you will have around $865,000 at age 65. 10% a year is about what you should expect if the money was placed in a no-load S&P 500 Index Fund. So for about $23 a week or $3.30 a day you will be close to being a millionaire.

If you contribute the full $4000 a year allowed right now (rising to $5000 in 2008), you would have $2,600,000. For about $11.00 a day, you would have a small fortune. If you didn’t want to take a chance with the stock market (after all, it goes down sometimes), you would still have over $600,000 if you could get a 5% return.

If your grandmother leaves you $10,000 in her will and you invest it for the same 43 years at 10% without adding another cent, you’d still have over $600,000 if you placed it in a tax sheltered account. Time and the power of compound interest are on your side. So if you’re in you twenties, do whatever you have to scrape together that IRA contribution. Every day you procrastinate is another day your money is not working for you. However, most people in their twenties need the money for more important things, like new cars and HDTV’s. You also have school loans to pay, children to raise and the new mortgage to pay off. But if you prioritize your life and stick to a budget, $11.00 a day is doable, although you might have to scrimp here and there.

Consider that most people are spending their livings paying the freight for borrowing ‘other people’s money”. If you save and invest, other people are paying you to use your money. It’s a lot more fun to see your money working than having to work yourself.

It gets harder to amass wealth as you get older. If you wait until you’re 32 and put away $4000 at 10%, you would have about $975,000, still a respectable amount. At 42, you’d only be able to accumulate approximately $350,000. If you’re 50 and can start putting $5000 (those over 50 are allowed “catch up contributions”) away today, you’ll have around $175,000 at age 65.
Everyone knows that Social Security is not going to allow for a comfortable retirement. Even if the plan can continue to pay out forever, which is questionable right now, the money you receive will be far from generous and is subject to taxation.
You might have a good pension plan at work now, but will you be able to hold your current job to retirement? If you have a Roth IRA, you can withdraw the money tax free after age 59 ½. Imagine having a million tax free dollars you can play with. It will well make up for the small sacrifices you have to make to get there.

No matter what your age, start saving what you can now – today. Even if you only amass $100,000, you’ll be better off than most people entering retirement.

There are many avenues available to help you have an enjoyable retirement, one that is free of money worries and woes. Take you time, read and educate yourself on them before you choose the one, or ones, suited for you.

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