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Preparing for the Golden Years
Financial Planning for Retirement
By Megan L. Fowler
Though it may be many years away, retirement is something all of us think about. Certainly you don't want to work until you're 80, but you're not sure how you'll live if you retire at 65. And what about your child's future? Should you start a retirement fund for him now? Is that even an option? And what should you know about the 401(k), an IRA and a Roth IRA? Is one better than the other?
"By the time a parent reaches retirement, they should have enough funds saved to replace approximately 80 percent of their income," says Sean O'Neill, a financial planner in Highlands Ranch, Colo. "The general recommendation is to save at least 10 percent of your paycheck each month. However, that may not be enough, or it may be over-funding retirement depending upon your circumstances." He suggests sitting down with your financial consultant or if you don't have one, sitting down with your spouse to start crunching some numbers.
"Saving for retirement is one of the most important things you can do, but it is also vital to be realistic," says Debbie Webb, a CPA in College Station, Texas. Often she says young married couples who earn a modest living will tend to save as much as they can for retirement. "The trouble is that they suddenly realize they would like to buy a home before they retire, and then they are stuck for the down payment."
"They take it out of their retirement plans, but everything they withdraw will become taxable, and the bad part is that the large withdrawal may push them up into a higher tax bracket," she says. "To top it all off, they didn't withhold near enough to pay the resulting high tax bill, so they find they are deeply in debt to the IRS when they file their tax return. They would have come out ahead to put less into a retirement account and more into a regular savings account."
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