Yeah, right! Don't count on it.
And, even if it does still exist when
you retire, are you aware that the
current max pay-out is only about $960 a
month? Not enough to even live on.
So, you'd better plan for your own
retirement -- and soon!
The key is to make
a plan -- right away when you are still
young and stick to it! Whatever
you decide, make it automatic so that
your retirement accounts get paid before
you do. In addition to your
official retirement account (hopefully,
you'll have a nice one where you work),
you should plan on saving 10% of your
income on top of that. If you
can't do 10% right away, start with 1%
for a few months, then go up to 2% for a
few months and so on. Keep
working your way up and soon you won't
even miss the saved money.
Here are some of
the main types of official retirement
The 401K Account:
These are offers through your employer.
When you are hired, this is the first
thing you'll want to ask about and set
up as soon as they'll let you.
Some employers will want you to wait
(sometimes up to a year) and some will
let you start your 401K account right
away. Sometimes your employers
will even put some money in your account
as a little bonus. This is called
"matching funds." Hey, that's free
Here's how it
works: Each time you get paid, a
set amount (that you'll decide on and
tell your employer) will be taken out of
your paycheck BEFORE it is taxed by the
Let's say your
paycheck is for $10,000 and you
contribute $1000 to your 401K...
The IRS will then just tax the remaining
The money you put
into your 401K will get invested in
mutual funds and
(your company will have a list of things
you can invest in). The cool thing
is that you won't have to pay any taxes
on the interest your 401K account makes.
The bad thing is that you can't take any
money out of your 401K (without a
penalty and without having to pay taxes
on it) until you are 59 1/2 years old.
You'll pay taxes when you start making
withdrawals out of the account...
But, you'll be making less money then
and will have to pay a lower percent in
If you leave your
job before you retire, DO NOT CASH OUT
YOUR 401K!!! This is one of
the dumbest financial moves people make.
Why? Because of how that wonderful
only will you get hit with a 10%
penalty, you'll have to pay taxes on the
chunk you take out. And you'll lose those years
of compounding! When you leave one
job, you'll be able to transfer
(rollover) the 401K
to your new job. You have to let
them do the transferring though...
That money can never touch your hands or
your other accounts. It's not like
the 5 second rule when a cookie hits the
floor. When that money hits you,
penalties and taxes hit you!
Statistics show that most people change
major jobs in their late 20's and most
of them make this mistake. Don't
let it happen to you.
NEVER TAKE OUT A
LOAN FROM YOUR 401K!
the deal on why: The money you
originally put into that 401K was
PRE-TAX money... When you pay it back,
you'll be paying it back
with money that
has been taxed... Then, when
you're retirement age and take the money
out, you'll get taxed on it...
taxation and NOT a very smart
thing to do!
is when you are still with the same
employer, but you want to change the
company that holds your 401K account.
(Like changing from Fidelity to
is when you are changing jobs and you
want your new employer to continue to
make deposits into your existing
The 403B Account:
This is, just about, the same as the
401K, but it's for the employees of
government and non-profit organizations
(like teachers and fire fighters).
They are often called TSA's (tax
Then there are
some other retirement accounts that you
can get outside of work.
The IRA Account:
IRA stands for individual retirement
account. The idea is a lot like
401K's and 403B's...
the money in before it's taxed (it's
is invested in stuff like mutual
funds and bonds.
have to pay taxes on the interest
you earn until you retire.
have to pay taxes on the interest,
dividends or gains you make on the
taxes when you start to make
withdrawals out of the account
(starting at age 59 1/2 or later).
The idea is that, by this time,
you'll be making less money and will
be in a lower tax bracket.
(You'll pay a lower percent in
penalties and taxes for early
transfer it (or "roll it over"), but you can't touch it.
(2005-2009) limit is $2000 a year. One
little note: If you make a lot of
money, you won't be able to do an IRA as
a tax-deductible thing... This
just means that, if you make $200,000 a
year and contribute $2000 to you IRA,
you'll still get taxed on $200,000...
So, you'll want to do this next type:
The Roth IRA Account:
This is the same as a regular IRA except
that you pay taxes on the money BEFORE
you put it in the account and not after.
Roth IRA's are the new and hip thing in
the financial world.
several other kinds of retirement
accounts for small businesses and for
self-employed people. If this is
you, definitely look into these options.
Just because you are self-employed, it
doesn't mean you can't set up an
official plan... The SEP IRA might
do the trick.