1. Know your retirement needs.
Retirement is expensive. Experts estimate that you'll need about 70% of your pre-retirement incomeâlower earners, 90% or moreâto maintain your standard of living when you stop working.
2. Find out about Social Security.
Social Security pays the average retiree about 40% of pre-retirement earnings. Call the Social Security Administration at 1-800-772-1213 for a free Personal Earnings and Benefit Estimate Statement (PEBES).
3. Learn about your employer's pension or profit sharing plan.
If your employer offers a plan, check to see what your benefit is worth. Most employers will provide an individual benefit statement. Before you change jobs, find out what will happen to your pension. Learn what benefits you may have from previous employment. Find out if you will be entitled to benefits from your spouse's plan. For a free booklet on private pensions, call the U.S. Department of Labor at 1-800-998-7542.
4. Contribute to a tax-sheltered plan.
If your employer offers a tax-sheltered savings plan, such as a 401(k), sign up and contribute all you can. Your taxes will be lower, your company may kick in more, and automatic deductions make it easy.
5. Ask your employer to start a plan.
If your employer doesn't offer a retirement plan, suggest that he/she start one. Simplified plans can be set up by certain employers. For information on simplified employee pensions, order Internal Revenue Service Publication 590 by calling 1-800-829-3676.
6. Put money into an IRA.
You can put $2,000 a year into an Individual Retirement Account (IRA) and delay paying taxes on investment earnings until retirement age. If you don't have a retirement plan (or are in a plan and earn less than a certain amount), you can also take a tax deduction for your IRA contributions. IRS Publication 590 contains information about IRAs.
It's Never Too Late to Start
Start young. A look at the performance of $2,000 retirement plan investments over time at 4% shows the value of starting early.
7. Don't touch your savings.
Don't dip into your retirement savings. You'll lose principal and interest, and you may lose tax benefits. If you change jobs, roll over your savings directly into an IRA or your new employer's retirement plan.
8. Start now, set goals, and stick to them.
Start early. The sooner you start saving, the more time your money has to grow.
9. Consider basic investment principles.
How you save can be as important as how much you save. Inflation and the type of investments you make play important roles in how much you'll have saved at retirement. Know how your pension or savings plan is invested.
10. Ask questions.
Talk to your employer, your bank, your union, or a financial adviser.
For more information: Employee Benefits Security Administration, U.S. Department of Labor, 866-4-USA-DOL , publication hotline: 1-866-444-EBSA (3272); Savings Bond Operations Office, U.S. Department of the Treasury, http://www.publicdebt.treas.gov/sav/sav.htm ; Social Security Administration, 1-800-772-1213, http://www.ssa.gov .
Besides these government agencies, many private organizations may be helpful. For additional information, you may want to contact one of the following groups: American Association of Retired Persons, 202-434-3525; American Council of Life Insurance, 1-800-705-ACLI; American Institute of Certified Public Accountants, 201-938-3990; American Savings Education Council, 202-659-0670, http://www.asec.org ; Commission on Saving and Investment in America, 202-628-5900; Employee Benefit Research Institute, 202-659-0670, http://www.ebri.org ; Investment Company Institute, 202-326-5800; Securities Industry Association, 202-296-9410.
The following government organizations offer retirement planning information:
- Administration on Aging www.aoa.dhhs.gov/default.htm Variety of information
- Department of Veteran Affairs www.va.gov/ Material for veterans
- Internal Revenue Service www.irs.gov/ Tax-oriented information
- Employee Benefits Security Administration www.dol.gov/ebsa/welcome.html Pension plan information
- Pension Benefit Guaranty Corporation www.pbgc.gov/default.htm Private pension plan information
- Railroad Retirement Board www.rrb.gov/ Retirement programs for railroad workers
- Social Security Administration www.ssa.gov/retirement/ Range of material
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