Investing for Retirement

Whether you are just starting out a brand new career, or you have been in one for several years it's never too late to start planning for the future. This article will take a look at some the steps needed to get you on your way as well as provide some basic definitions and tips for things to be warned of.

Four simple steps to start your planning

1) Estimate how much you need for your retirement expenses. The best way to do this is to start by looking at how much you currently spend in a year. Here are a few questions to ask yourself.

• How much do you take home on a monthly basis?


• How much already comes out of your paycheck that will become out of pocket expenses once you are retired?(Think of things like health insurance)


• What other expenses do you plan on needing - like travel, or medical expenses?


• How much do you plan to put away as additional savings for unexpected expenses (like automobile repairs, etc)?


• How much will you pay in taxes?


• What costs will be reduced or deducted completely with retirement? (think of transportation costs, etc)

Once you have gone through all your expenses - you can come up with a numerical figure for how much you will need for the year.

2) Next you need to figure how much you will get from guaranteed sources. This would include things like social security, pension incomes, or annuity incomes.

3) Calculate the Gap between what you will need and how much you will receive from guaranteed sources.

4) Don't forget to think about inflation and life expectancy.None of knows how long we plan on living, but we need to plan our retirement out with best and worst case scenarios.As you look at life expectancies, you need to also think of medical scenarios that might require additional financial implications.There are several online calculator programs that can help you with this.

Major Retirement Vehicles: 401(k) plans and IRAs.

1) 401(k) / 403(b) - this account type is quite popular and used among many companies to help individuals start their savings for retirement.Contributions are usually deducted directly from your paycheck.Some companies will match the amount you contribute or contribute a percentage amount based upon your salary.Contributions to these accounts are tax deductible.The account is able to grow tax free.There are limits on the amount that can be contributed per year.

2) IRA (Individual Retirement Arrangements) - these account types are handled outside of the employers realm.Anyone that makes an income can open one. There are many different sub-types of IRA's so you need to do your research to see which fits your financial goals and needs.Contributions to IRA's are tax deductible and can grow tax free.Income taxes are only assessed if you begin taking disbursements from the account. A Roth IRA is different because it is not tax deductible.However, your growth and disbursements are tax free.So a traditional IRA allows you to pay taxes later, where the Roth IRA requires that you pay taxes now.

Finally, let's look at a few things to be mindful of as you plan your retirement.Make sure that when you sit down to plan you think about what expenses you may need and when you will need them.Match your investments to when you need it.Do your research - make sure you know the penalties and fees associated with disbursements and withdrawals.Have a strategy, make sure you've done your research, don't ignore your portfolio or get too emotional about losses or gains.