Planning for Retirement (1276)

It has taken you years of hard work and planning to develop your career. Retirement also requires planning and preparation to be successful.

Ideally, as you begin your career, you’ll also begin a strategy for planning your retirement. Finances needed in retirement are based on desired living standards, changes in utilizing free time from the workforce, inflation, and meeting other family financial obligations.

Knowing what your expenses will be vs. what income you’ll have available, makes it easier to determine if your needs and desires will be met. Time, rate of return and amount of money will determine future available funds. An individual who saves $2,000 a year earning 9% for 10 years from the age of 25 to 35 will have a net earnings of slightly over a half million when she retires at age sixty-five. But, someone who procrastinates and doesn't begin saving until thirty-five and then saves $2,000 every year for the next 30 years will have only 3/5 of that amount at age 65.

Understanding the time value of money may inspire you to save for your retirement by paying yourself first from every paycheck or enrolling in a payroll deduction plan. The earlier you get started, the more money you will have as you approach retirement.

Consider what standard of living you wish to maintain during retirement. Do you plan to be active, travel or develop new hobbies? Then develop a budget that projects those costs and eliminates expenses that will no longer be incurred - such as work-related expenses - once you leave the labor force. Can you afford your desired lifestyle? Do you need to reevaluate your financial needs?

Finally, what other family financial obligations do you foresee as you approach retirement. Young children at home, grandchildren with educational needs, or older family members needing your assistance may require additional financial resources. They can be more easily handled if you have had some time to prepare financially.

Besides considering how much you need to be saving, you also need to consider how your retirement savings are invested. Consider tax-deferred and tax-exempt options. Take time to determine what your real savings and gains are if you choose to use a 401K, 403B, deferred compensation or (Simplified Employee Pension Plan) SEP plans provided by your employer. These plans are especially attractive if your employer matches some or all of your contributions.

Consider making contributions to an individual retirement account or IRA. Depending on your income, your annual contributions to a traditional IRA may or may not be tax deductible. Or you could set up a Roth IRA. While contributions are not deductible when you make them, all your earnings are tax-free when you withdraw them, provided they were in the account at least five years.

For more information on this subject, Please visit the College of Agricultural Sciences Publications Web site.

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