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Is Retirement Within Your Reach?
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Is a retirement plan really necessary?
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Your Retirement Goals What’s your choice? Retire by age ? Work part-time? Travel? Buy home in warmer climate? Reduce lifestyle? Maintain or increase current lifestyle?
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Which one will you be driving when you retire?
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When do you plan to retire? How much to save? Age 35 Age 55 $1$4
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How long will your retirement last?
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What will retirement cost?
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What are your sources of retirement income?
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Sources of Retirement Income Company Retirement/Pension Plans Social Security Individual savings Tax deferred or taxable Part time work
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How much have you currently set aside for retirement?
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Estimating the Amount to Save $ Retirement income goal $ Social Security and Pension income $ Additional income needed $ Value of assets currently owned $ Revised amount to save
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Retirement Calculators
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Social Security Contribute for 40 quarters Replacement rates between 59% and 24% depending on income earned Collect full benefits at designated retirement age
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Full Retirement Age by Year of Birth Year of BirthFull Retirement Age 1937 & earlier65 years 193865 years, 2 months 193965 years, 4 months 194065 years, 6 months 194165 years, 8 months 194265 years, 10 months 1943 - 195466 years 195566 years, 2 months 195666 years, 4 months 195766 years, 6 months 195866 years, 8 months 195966 years, 10 months 1960 & after67 years
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Check Social Security Records þSSA will automatically mail your statement of retirement, disability & survivor benefits 90 days before your birthday þUse “Requests for Earnings and Benefits Form” from Social Security office or call þ1-800-772-1213 or consult web site www.ssa.gov þSave IRS W-2 Forms
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Retirement Plans Company Retirement Plans Salary Reduction Retirement Plans Individual Retirement Accounts (Traditional or Roth) Plans for the self-employed
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Contributions with pre-tax dollars lowers taxable income.
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Maximize benefits from your Retirement Plans $ Begin contributions as soon as possible. $ Make maximum contributions allowed, if possible. $ Choose investments that pay high earnings
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Saving in a Tax Deferred versus a Taxable Account Years 10 20 30 40 Taxable Account $ 24,420 $ 59,201 $108,740 $179,279 Tax Deferred $ 26,414 $ 69,414 $139,679 $253,679
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Individual Retirement Accounts Tax-deferred retirement program Must have earned income or alimony Contribute up to *:$4,000 in 2005-07 $5,000 in 2008 *Amounts shown are for individuals. Amounts double for couples.
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Traditional Individual Retirement Accounts Fully deductible from income taxes if no retirement plan at work. OR May be partially or fully deductible based on Adjusted Gross Income.
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Deductible IRA Income Limits Year 2005 2006 2007 Joint Return $70,000-$80,000 $75,000-$85,000 $80,000-$100,000 Individual Return $50,000-$60,000
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Deductible IRA Contributions Reduce taxable income Report on 1040 tax form
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Traditional Non-deductible IRA Contributions File IRS Form 8606 with Federal Tax return Retain copy permanently
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Investing in Traditional IRAs Check yearly maintenance fees. As IRA grows in value see if fee can be removed. 10% penalty plus taxes on amount withdrawn before age 59 1/2.
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Roth IRA Contributions made with after-tax dollars No mandatory age for withdrawals No mandatory age limit for contributions Contributions (after-tax dollars) always available for withdrawal without penalty
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Roth IRA Rules Withdrawals of earnings are not taxed if… Account is 5 years old and You are at least 59 ½ or Earnings up to $10,000 are being used for first time home purchase or Higher education for self, family & grandchildren
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Roth IRA Contributions Make contribution to Roth IRA until April 15 for previous year. The 5 year waiting period for tax free withdrawal of earnings begins with the year of the first contribution. Ordinary IRA funds converted to Roth IRA must remain at least 5 years or a 10% penalty will apply.
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Investing in IRAs Don’t have $4,000 all at once? Consider making automatic monthly payments from checking account or payroll deduction.
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Contributions held in a custodial account Accounts can be at any financial institution, bank, credit union, mutual fund company, brokerage account. Invest for high return.
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Timing IRA Contributions Make contributions as early in year as possible Can make previous year’s contribution until April 15th, but tell account custodian it is for the previous year
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IRAs - An Example of Return on Investment Contributions made only between ages 22-30 (9 years) $2,000 contributed each year Total investment of $18,000 At an interest rate of 9% by age 65 will have $579,471
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IRAs - An Example of Return on Investment Contributions made only between ages 31-65 (35 years) $2,000 contributed each year Total investment of $70,000 At an interest rate of 9%, by age 65 will have $470,249
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E. M. I. L. Y. Early money is like yeast, it helps your dough rise!
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IRA Direct Transfers – transfer of IRA funds from one IRA custodian to another
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How to save $3,000 per year
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Finding Money to Save One cup of coffee at $1.00/cup x 5 days x 50 weeks = $250/yr. One soft drink at $1.00/each x 5 days x 50 weeks = $250/yr. 2 video rentals/week @ $3.00 each x 50 weeks = $300/yr. One fast food meal/week @ $5.00 = $250/yr. TOTAL SAVED = $1,050/year Other ideas?
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Retirement Planning Has Changed! $ More self-directed $ No “guarantees” $ Living longer $ Portable plans $ Inflation & taxation
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Think of retirement as a vacation -- take half as much baggage and twice as much money!
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Is Retirement Within Your Reach?
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