- THE MAGAZINE
Retirement planning means far more than simply accumulating a nest egg for the years when you’re no longer working. It involves developing a long-term investment strategy that helps you meet this critical goal without losing sight of your more immediate financial concerns, such as paying your mortgage or sending a child to college.
Where Will Your Retirement Nest Egg Come From?
Retirement planning experts agree that you will need about 75 percent of your pre-retirement income to maintain your current standard of living in your retirement years. Therefore, before you can formulate a cohesive retirement plan, you need to determine what your sources of income will be in retirement.
If you, as employer, offer a 401(k) plan, both you and your employees generally have the ability to invest in a variety of professionally managed investment options. The earnings on the money you invest are tax deferred, so the entire amount can be reinvested in the plan to compound your return. Contributing to the plan can also give you immediate income tax savings. That’s because 401(k) plans are salary-reduction plans, which means you do not have to pay income taxes on your contributions to the plan until you make a withdrawal. If you are eligible to participate, you may generally contribute up to $11,000 each year (depending upon the provisions of the plan).
The Responsibility to Plan is Yours
The majority of the income you will need in retirement will most likely come from you. That’s why it is vital that you take the time now to develop an intelligent, practical retirement plan that can help you meet your retirement income needs.
A good way to start is to participate to the fullest extent possible in a 401(k) plan (if you or your company provides one) and make annual contributions to an IRA. Both give your money the potential to grow on a tax-deferred basis.
There are many tools available to help you quantify your goals and implement your plans. By working with a professional financial adviser, he or she can help you develop a retirement plan that suits your particular goals and circumstances. Through education, patience and a disciplined approach to saving, you can achieve your ultimate goal of financial freedom in retirement.
UBS PaineWebber does not provide tax or legal advice. Consult with your tax and legal advisors regarding your specific situation.