By Ose T. Okojie
Securing Your Retirement Dollars
Managing money is a lifetime challenge -- one that can be made easier with planning. Planning for retirement is especially important to ensure that those "golden years" are pleasurable and financially secure.
Three elements contribute to a well-constructed retirement plan: Social
Security, a company pension, and personal savings. If you currently are
employed and if you have met the requirements, you will receive a certain
amount of income from Social Security when you retire. You also may be eligible
to participate in your company's pension plan, if one is offered. However,
building your personal savings and other assets for retirement may be more
challenging, since it involves determining how much of your income you have
left to invest after meeting your current financial obligations. How can
you build up your personal income for the retirement years? In addition
to taking advantage of the options you may have with your life insurance
policy, there are other retirement products that can help you accumulate
money, such as individual retirement accounts, salary reduction plans, Keogh
plans and annuities. Individual Retirement Accounts (IRAs)
An individual retirement account, which you may open as long as you are
earning income, can be an essential part of your retirement plan. In general,
if you, or you and your spouse, are not covered by a company pension plan,
you may contribute up to $4,000* in 2006 to a traditional IRA and deduct
your contribution from your taxable income. (That number is increase to
$5,000 in 2006 and 2007 if the IRA owner is age 50 or older.) In a one-income
family, additional contributions may be made on behalf of a non-earning
spouse. If you are eligible for a company pension, you still may be able
to make a tax-deductible IRA contribution if your income is below a certain
level. Otherwise, you may make only a non-deductible contribution to an
IRA; however, those contributions will earn tax-deferred interest until
the money is withdrawn. Even if you or your spouse is an active participant
in a retirement plan, you still may be able to make a tax-deductible IRA
contribution if your income is below a certain level. Because IRA money
is designated for retirement, there may be tax penalties if you withdraw
money before age 59 1/2. You must start to withdraw when you reach age 70
1/2. In addition to the tax-deductibility of contributions to traditional
IRAs, earnings in a traditional IRA grow on a tax-deferred basis, free from
taxes until the money is withdrawn. Unlike a traditional IRA, money contributed
to a Roth IRA is not tax-deductible; however, this money will grow, tax-deferred,
and neither the principal nor the earnings are taxable when withdrawn (provided
that certain conditions are met.) Certain income limitations apply. Note
that your combined contribution to a Roth IRA and traditional IRA cannot
exceed $4,000* in 2006. Consult with your tax advisor to determine which
IRA - Roth or traditional - will best meet your needs.
Salary Reduction Plans
If your employer offers a 401(k), you can put away part of your salary and
defer the payment of income taxes until the money is withdrawn. Money may
be withdrawn when you retire, or if you become disabled, leave the company,
or suffer financial hardship. However, like IRAs, there are strict rules
that apply to early withdrawals.
Keogh Plans
If you are self-employed, even part-time, you may have a Keogh plan and
put away still more tax-sheltered money for retirement. Contributions are
deductible and grow on a tax-deferred basis. You may put your Keogh money
into any of the investment vehicles available for an IRA. Unlike a traditional
IRA, you may contribute to a Keogh as long as you are earning income from
self-employment, even after age 70. However, you must start to withdraw
money from your Keogh at age 70, so you may be withdrawing at the same time
you are contributing.
Annuities
While you can outlive the proceeds of your IRA, your Keogh plan or your
investments, some annuities provide you with the option of receiving a guaranteed
income for life. Immediate annuities generally are purchased by people of
retirement age. Such plans provide income payments at once or soon after
purchase. They usually are purchased with a lump-sum payment. Deferred annuities
are plans under which you arrange to have income payments start at some
future date. Interest on the money contributed builds up on a tax-deferred
basis. Such plans often are used by younger people to save additional money
for retirement. Under a deferred annuity, if you die before the annuity
payments begin, the accumulated value of your contract is paid to your designated
beneficiary. An annuity has tax advantages. In a deferred annuity, the interest
credited to your account builds up free of current income tax. You pay no
tax until you get the annuity's benefits. If you withdraw the accumulated
value of your annuity contract before retirement age, however, there can
be significant tax penalties, and current taxes will have to be paid. Remember,
as you begin to assess which investment options are appropriate for you,
do not forget to take advantage of the information you can get from financial
planners, insurance agents, attorneys and other professionals. New York
Life and its agents do not provide tax, legal, or accounting advice. Please
consult with your professional advisors regarding your particular situation.
Note that there are limitations and restrictions associated with the plans
and products mentioned above.
* This amount remains at $4,000 for 2007, and will increase to $5,000 in
2008. For years beginning after 2008, the maximum annual contribution amount
will be indexed for inflation.
o Ose T. Okojie,
is a Registered Representative with NYLIFE Securities LLC. For more information
about insurance and other financial products, contact Ose T. Okojie at 713-963-4287.
