Retirement
The phase of life that requires well-thought-out preparation
Retirement is a reward. After getting up early every morning for years, sitting in traffic and dealing with office politics, a less stressful period awaits.
The concept of retirement is much like returning to childhood. It means less responsibility, more time to do things you like and more goofing off. It’s a time for travel, hobbies, family or rest. It can be the culmination of planning and strategy or a return to the poorest period of your life; it’s up to you.
The concept of retiring has always meant one thing; your earning years have ended and your payout years begin. If you scrimped and saved, then your retirement can be carefree and enjoyable. If you counted on social security as a primary source of income, your retirement years can mean few luxuries.
Planning for retirement – 401k contributions and other considerations
With pensions becoming a rarity, employers have gradually shifted to defined contribution plans like 401k’s and 403b’s. The amount you pay into these plans is known, while the amount you will receive in retirement is generally unknown. The additional benefit of a defined contribution plan is the tax-deferred buildup of investment earnings. Contributions to these plans are made with before-tax dollars, so there can be a reduction in the employee’s taxable income.
Planning for retirement- IRA’s
Beginning in the seventies, Congress recognized the need to start removing American’s sole reliance on the social security system. They also recognized an imbalance between those who had pensions and those who didn’t.
The projected trends showed fewer people paying into the social security system compared with those receiving benefits. The baby-boom generation, with its 73 million boomers, was projected to place a particular strain on social security. The need to begin to create new ways to save for retirement began in 1974. That year, Congress passed ERISA, the Employee Retirement Income Security Act.
ERISA provided many benefits to participants in employee retirement plans, but it also created an individual plan called the IRA. The first year an IRA could be utilized and deducted from taxes was 1975. The deduction amount was $500.
Another individual plan that can be utilized by self-employed people is the solo Roth 401k.
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