Retirement Planning Considerations for All Americans

One thing is sure for those who live to a ripe, old age. These folks are likely to need to slow down at some point and retire. For some, this will be forced upon them by an employer or by illness. Others will have more of a choice as to when they decide to walk away from paid employment. Regardless of when or why retirement comes about, it’s important to adequately prepare for one’s golden years with a bit of retirement planning.

Retirement Planning is a must!
Retirement Planning is a must!

According to one recent study from the Economic Policy Institute, the median retirement savings for all working-age families in the US stands right around $5,000. This would pay for a month or two for a frugal family, but it is well short of what one might need to save up for a comfortable retirement.

Those between 56 and 61 years of age are doing a bit better than the average, but their savings still only reach $17,000 on average. How can you achieve a better retirement? Here are some ways to diversify your finances so that when you hit retirement age, you’ll be able to subsist on something other than dog food. These statistics are some of the reason that I’m saving money in an IRA and building up passive income.

Social Security Should Be Part Of Retirement Planning

Just about every retiree in the US can count on some level of Social Security payment. While the payout to future retirees may be lower than what current retirees can expect, there should be some level of income for those who reach 62 years of age in the future. Social Security should not be your only source of retirement income.

The Social Security Administration recently noted that more than a third of current retirees rely on Social Security for 90 percent of their retirement income. This is scary. This means that you should start thinking about retirement finance as early as possible.

The average social security payment is a little more than $16,400 a year.  This is something, but it’s not going to be enough for most people to live on.

Remember Tax-Advantaged Accounts

The government makes it somewhat easy to save for retirement in addition to Social Security. There are a number of different tax-advantaged accounts that have names with a number in the 400s. These allow people to save for retirement while also cutting down on the amount of federal income taxes that they have to pay. Tax-advantaged accounts should be an important part of any worker’s retirement planning strategy.

The 401k is probably the most familiar of these retirement accounts, but you can also access tax-deferred accounts if you work for nonprofits or governmental agencies. These accounts are  403b and 457b plans. Some employers will actually offer both. The maximum that employees can contribute for each is $18,000 per year.

Use IRAs As Well

You don’t have to have an employer who sponsors a retirement plan for you. It’s also possible  save money each and every year on your own. As of 2017, you can save up to $5,500 each year ($6,500 if you’re above 50 years of age) in an individual retirement account, also known as an IRA.

There are two flavors of IRA accounts. The traditional format allow you to cut your taxable income in the current year, but requires you to pay taxes on the amount you save and any growth in the account when you access the funds. A Roth IRA does not come with the tax deduction in the current year, but it does allow retirees to withdraw contributed funds and any gains and income tax free.

These accounts come with a 10-percent penalty for accessing the funds before age 59 1/2. The penalty does not apply if your employer lets you go after turning 55. This penalty is in addition to the income taxes that you might have to pay.

Why My Retirement Planning Includes Dividend Stocks

I could sit back and plan to use pensions and Social Security payments for my entire retirement income. I could also wind up eating Alpo. That’s why I’m buying stocks to build up a passive income that comes in when I can no longer work or hit an age when I don’t have to work.

Stocks (at least a broad exposure to them) have tended to grow over time. They also throw off dividends and distributions that are real cash that real companies pay. These dividends tend to grow at a rate that exceeds the level of inflation over the long run. Therefore, my purchasing power should not go down on this part of my retirement income. It likely will for pension and Social Security income.

What does your retirement planning look like? What avenues are you using?

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