To help Americans plan for a financially secure retirement, the Social Security Administration has been mailing statements to all working Americans over the age of 25 who have contributed to the Social Security program. These statements provide an estimate of current and projected Social Security benefits.
Your projected annual benefit is shown at age 62 (early retirement), at full retirement age (which increases gradually from 65 to 67 for those born after 1938) and at age 70 (postponement of benefits). The statement also lists the Social Security taxes that have been paid on your behalf as well as your employment earnings to date. Typically, your statement will arrive about three months before your birthday.
Review Your Retirement Prospects Now
Use the Social Security information in the statement to help assess your retirement needs. Keep in mind that we are living longer, healthier lives. As a consequence, you have to plan to fund a retirement that could last for 20 or more years. Many financial planning experts estimate that you will need between 70% and 80% of your gross annual income to maintain your current life style during retirement, making it clear that Social Security alone will probably not be enough.
The IRA Advantage
Making annual contributions to an Individual Retirement Account (IRA) is a simple and convenient means of accumulating additional funds for retirement.
Today most working Americans have the opportunity to contribute up to $3,000 a year to a tax-favored IRA. Depending upon certain income requirements, you and/or your spouse may be eligible to deduct Traditional IRA contributions or to establish a Roth IRA. The Roth IRA may provide you with tax-free income under certain circumstances.
Regardless of the type of IRA, all investment earnings and gains in an IRA accumulate on a tax-deferred basis, which means you pay no current income taxes on account earnings until they´re withdrawn. (Withdrawals before age 59 ½ may incur a 10% federal penalty tax.) Over time, this tax deferral could have a powerful effect on the value of your IRA account.
Put Your Retirement Plans on Track
Secure your retirement by reviewing your Social Security statement and by contributing to your IRA. Discuss your retirement income objectives with your financial advisor. Together you can determine which of the many investment vehicles available are appropriate for your individual needs.
This article does not constitute tax advice. Consult your tax advisor before making any tax-related investment decisions. This article is published for general informational purposes and is not an offer or solicitation to sell or buy any securities or commodities. Any particular investment should be analyzed based on its terms and risks as they relate to your circumstances and objectives.