retirement

If you’re 20 or maybe even 30 years away from retiring you probably may have not given much thought to exactly what things will be like when you get there. When I was working in financial services it was my job to bring up this topic and for most people they had no idea all the work that would go into living a successful retirement.

However while I was working in financial service for several years I started to notice a few problems that many seniors were facing on a regular basis and in this article I’m going to cover the 3 most common ones and show you how to avoid them no matter what your age.

Life Insurance

The first common problem I see seniors dealing with is life insurance. You might be wondering why someone this old would even need life insurance. The truth is seniors are facing different types of debt issues as well from funeral expenses, to credit card debt, to being able to pass some money on to a surviving spouse.

The problem is buying it at an older age, especially over the age of 60, can get quite costly. On top of that I would have to say I’ve been approached by more people in this age bracket to purchase life insurance than any other age group. So what’s the solution to this?

First off, if you’re someone who is younger take time to set up a policy now. The younger you buy a policy the cheaper it will be. In fact the difference someone in their 20′s to someone in their 60′s could be more than a $100 a month.

However if you’re someone who is a lot older and even have a few medical problems you can still get a policy to cover you. One option I suggest are guaranteed acceptance life policies, because they can give you up to $15,000 of coverage and all you have to do is answer three basic medical questions. So take some time to review your options now before it’s too late.

Taxes

The next problem senior’s face is taxes. When you think about it seniors actually lose a lot of tax breaks when they retire. Below are just a few for you to consider.

Mortgage Interest Deduction This deduction allows you to deduct any and all interest you’ve paid toward your mortgage in a year. However, once you get older and pay off your mortgage this deduction will be lost.

Child Deduction The same goes with your children. When your children grow up and move out you will lose the ability to deduct a $1000 per child off of your taxes each year.

Retirement Deduction Finally, during your working years you may have been putting money towards your retirement either through a 401k or an IRA. These programs allow you to deduct all the money you contribute towards them in your working years. However, when you retire this privilege will be lost as well.

So what should you do now to cut your taxes? First off, I should mention that I’m not a tax professional so you will defiantly want to consult one to help you side step any landmines. Secondly, if you’re still in your 20′s and early 30′s get started by saving now. As like the life insurance the sooner you start the better off you will be in the end.

On top of that consider putting around 50% of your retirement towards a Roth IRA. The benefit to a Roth IRA is that it allows you to pay your taxes now during your working years and when you retire you will be able to withdraw your money without owing any taxes on it.

However if you are someone who is retired one option is to pull extra cash out of your 401k and IRA on years your taxes are less. For example, if you are $3000 away from bumping up to your next tax bracket, take out the $3000 and pay the taxes on it now if you can afford it. This way you will always be paying the least amount in taxes possible.

Income

Finally, the last issue senior’s face is income, and for a lot of them they are on a fixed income because they may either be depending social security or a pension of some kind. On top of that like mentioned in the last section they will also owe taxes on this money as well.

However it’s not impossible for seniors to earn a little extra income. One option is to take up a part time job. The reason this works great for those who are retired is it gives them something to do. Face it if all you did all day was sit around your house and stare at the walls it would get old fast, not to mention it’s not good for your body.

One great example of this is my father. He drives a delivery truck for my manufacturing company, delivering are product out to our customers. He drives around 2 to 3 days a week and he can take off anytime he wants.

Another option to consider is the internet. The great thing about the internet is that there are so many jobs available for people. For example, maybe you were an account in your working years. With sites like Elance.com you can manage people’s books for them right over the net.

When it comes down to it you can earn an extra income in a lot of different ways. So take some time learn how you could do this in your later years.

Final Thoughts…

In the end whether its income, insurance, or taxes you are dealing with you can defiantly find a way to steer around these obstacles with a little planning. So what are you doing to avoid these financial problems in your golden years?

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Learning the Differences: Traditional Versus Roth IRAs

Many people ask about the difference between the two most popular investment accounts out there, and most people want to know which one is the best. While the answer is never cut and dry, there are some very important differences between the two types that can have a profound, however individual, effect. If you are looking into putting your money into an IRA, then you should be well aware of the differences and how they will affect your life later on down the road. To help you get started, here are just a few of the difference that you need to take into account.

Traditional IRA Accounts

The traditional IRA is something that people choose to put money into in order to invest for retirement. These accounts allow for tax deductible contributions
throughout the year. While you can begin drawing on the funds at the age of 59 and ½, you will be forced to draw on them when you reach 70 and ½. These funds can later be used to purchase a wide assortment of investment products and it gives you the freedom to have the financial strategy that you want. There are no income restrictions on the traditional IRA, and you can be any age to acquire one. Taxes will have to be paid on any earnings that you withdraw from the account, and any money you withdraw before you reach the age of 59 and ½ you will pay a 10% penalty on unless you fall under one of the IRS’s eight exception rules.

Roth IRA Accounts

While the Roth IRA serves the same basic purpose as the traditional IRA, there are some differences that can make it a better, or worse, choice for your situation. Unlike the other, contributions that are made to the Roth IRA are not tax deductible. At the same time, there is no age that you will reach where you will be required to take distributions. Unlike the traditional IRA, the Roth IRA allows for all earnings, as well as principal, to be withdrawn totally tax free if certain rules are followed. These funds can be used to purchase a wide assortment of investment options, again, giving you control of your financial strategy.
Principal contributions to the account can always be withdrawn as well, but only people that make under a certain amount can acquire one of these accounts.

The Difference is in the Taxes

While the Roth IRA and the Traditional IRA both have some similar points, there are a few major differences. In the end, these differences come down to taxes. While the first option allows for tax deductible contributions, the second does not. Inversely, there is no tax charged on withdrawing funds or earnings from the second choice, while there is on the first. For many people, the Roth seems to be the best choice, but not everyone can get one of these accounts. Because there are so many differences, it is important that you look at everything and choose the one that is right for you and your specific retirement investing and financial situation. [click to continue…]

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401 (k) investments are often looked upon by employees as their retirement cushion savings. As critical as the purpose of 401 (k) investments is, most individuals look upon the sign up and maintenance process for their plans as a routine chore that is taken over by professional investment managers once the paperwork has been completed.

The truth, however, is that in order to maximize retirement savings and achieve peace of mind during the golden years, individuals need to be more actively involved in the management of their 401 (k) investments. Most employers give you the option of customizing your plan and actively choose and distribute the asset allocation strategy.

These plans are highly customizable and depending on what your employer offers, you can select from some of the following (although more possibilities exist, we cover the important ones):

Mutual funds

Well, most of us know what mutual funds are. They are vehicles, wherein a large pool of money is created from investments by multiple investors. The advantages are that one gets to diversify (in fact some mutual funds attempt to achieve stock market-like diversification to emulate the performance of S&P 500 and such large indices). If your plan offers you the option of selecting these as one of your asset classes, consider selecting the top-performing ones with a proven track record. Mutual funds further allow you the option of allocating your investment through money market, growth, international, stocks, bonds, and more. Depending on your employer’s offering, you may be able to allocate your money to one or more these asset classes.

Fixed income funds

You can also allocate your 401 (k) investments to fixed income, which essentially guarantee a fixed interest rates as a result of backing from guaranteed interest contracts powered and underwritten by insurance companies. Traditionally, although there is some form of interest rate guarantee there is also an associated risk of getting stuck with lower interest rates and slower growth potential.

Stocks

Corporate stocks, though potentially lucrative, present a very high degree of risk due to market forces and volatility. Depending on your age, proximity to retirement, and income you may want to balance the risk associated with these.

Bonds

Bonds could be either corporate bonds or savings bonds issued by the US Department of Treasury. Although lower risk, these instruments offer fixed income rates. Savings bonds are considered relatively safe investments while corporate bonds are rated by independent rating agencies.

In addition to these traditional asset classes, your 401 (k) investments could also be allocated to a variety of additional sophisticated asset classes and investment options. Your fund manager can provide you additional information about these options. Remember, though, these plans are not backed by government guarantees or insurance.

Disclaimer: This article is not intended as investment advice. You must check with a qualified professional before making any investment decision.

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