What retirement option will you choose

Tuesday, August 20, 2013

What retirement option will you choose

One of the most powerful life events, from both a financial and personal perspective, most people will ever experience is retirement.  Realizing a secure and fulfilling retirement can be an incredibly expensive process that takes plenty of careful planning and years of persistence.  And once retirement is reached, managing it properly is an ongoing responsibility that continues into one’s golden years.

Image credit: michaeldb / 123RF Stock Photo

While everyone would like to retire comfortably, the time and complexity required to build a successful retirement plan can seem daunting.  However, planning for retirement doesn’t have to be a headache – it just takes a little homework, an investment plan, attainable savings and a long-term commitment.

There are several retirement options available today, ranging from government and profit-sharing plans to 401(k) and IRA plans.  It simply boils down to what makes it more suitable for the individual – and, in some cases, people may have more than one retirement plan in progress.  Many mistakenly believe that a 401(k) plan is the only option when it comes to retiring, but an IRA is another excellent choice for most people.


Most financial experts estimate that people will need about 85% of their pre-retirement income during the retirement period.  Many employer-sponsored and government-based plans might not be enough to accumulate the savings needed.  The tax benefits associated with opening an IRA are appealing to most individuals who are thinking about enjoying a comfortable retirement.

An IRA, which stands for an individual retirement account, permits one to save money for retirement in a way that has a number of tax benefits.  This means that the account allows one to save money either with tax-free growth or on a tax-deferred basis.  The two main types of IRAs are Traditional and Roth.

With a Traditional IRA, individuals make contributions with money that may be deducted on the annual tax return, and earnings can grow tax-deferred until withdrawal during retirement.   Traditional IRA is beneficial for many retirees who often find themselves in a lower tax bracket than while they were working so they will pay less in tax later in life.  The main advantage is that investors can see the advantages on their current tax return, but they will be required to pay taxes upon withdrawals later on down the road.

If someone chooses a Roth IRA, he or she makes contributions with money that he or she has already paid taxes on, so contributions cannot be deducted from taxes each year and the money can grow practically tax-free.  During retirement, money can be withdrawn tax-free, as long as certain conditions are met.  The main appeal of a Roth IRA is that no taxes are required upon withdrawal, but the benefits of tax deductions during working years is not available - read more on why converting to a Roth IRA may be right for you.

Choosing a retirement plan is a crucial decision, and the sooner the decision is made, the better.  However, it is never too late to start saving for retirement, therefore, make a start today.

Author: Aimee

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