Suezaki and Easley are financial advisers at Morgan Stanley, 329-7979. Dale Ishida Suezaki & Taylor Easley | Financial Advisers ADVERTISING Social Security reports help assess retirement income needs Investing for retirement is probably one of your most critical financial goals.
Dale Ishida Suezaki & Taylor Easley | Financial Advisers
Social Security reports help assess retirement income needs
Investing for retirement is probably one of your most critical financial goals. Yet many of us do not have an adequate understanding of how much income we will have or need during our retirement even if we participate in a 401(k) Plan or other retirement investing program.
To help Americans plan for a financially secure retirement, the Social Security Administration annually mails 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 percent and 80 percent of your gross annual income each year to maintain your current life style during retirement, making it clear that Social Security alone will probably not be enough. According to the Social Security Administration (2004), Social Security replaces only about 40 percent of the average person’s salary.
The IRA advantage
Making annual contributions to an Individual Retirement Account is a simple and convenient means of accumulating additional funds for retirement.
Today most working Americans have the opportunity to contribute up to $4,000 to a tax-favored IRA for 2005. In addition, if you are age 50 or over, you may contribute a catch-up contribution of $500, bringing the total to $4,500 for 2005.* 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. If certain conditions are met, the earnings in a Roth IRA are not taxed on withdrawal.
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 1/2 may incur a 10 percent 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 adviser. Together you can determine which of the many investment vehicles available are appropriate for your individual needs.
* Unless Congress enacts additional legislation, for tax years beginning after December 31, 2010, the provisions for higher contribution limits will expire after 2010 and the limit will again be $2,000.
Morgan Stanley and its financial advisers do not provide tax or legal advice. Investors are urged to consult their personal tax or legal advisor about establishing a retirement plan and the tax consequences of any investments made under a retirement plan.
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.
Suezaki and Easley are financial advisers at Morgan Stanley, 329-7979.
