A Publication of WTVP

Investing for retirement is probably one of your most critical financial goals. Yet many of us don't have an adequate understanding of how much income we'll 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 secure retirement, the Social Security Administration (SSA) has been mailing statements to working Americans over age 25 who've 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 gradually increases 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 arrives about three months before your birthday.

Review Your Retirement Prospects Now

Use the information in the statement to help assess your retirement needs. Keep in mind we're living longer, healthier lives, so you have to plan to fund a retirement that could last 20 or more years. Many financial planning experts estimate you'll need 70 to 80 percent of your gross annual income each year to maintain your current lifestyle during retirement, making it clear Social Security alone will probably not be enough. According to the SSA in 2003, Social Security replaces only about 40 percent of the average person's salary.

The IRA Advantage

Making annual contributions to an Individual Retirement Account (IRA) is a simple means of accumulating additional funds for retirement. Today, most working Americans have the opportunity to contribute up to $3,000 to a tax-favored IRA for 2004. In addition, if you're age 50 or over, you may contribute a catch-up contribution of $500, bringing the total to $3,500 for 2004. 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.

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IRA accumulate on a tax-deferred basis, which means you pay no current income taxes on account earnings until they're withdrawn.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 59.5 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 contributing to your IRA. Discuss your retirement income objectives with your financial advisor; together you can determine which of the many investment vehicles available are appropriate for your individual needs. IBI