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How late is too late to start saving for retirement?

This question is difficult because the answer depends on your income and assets, your goals for retirement and many other factors. Ideally, you should begin saving for retirement in your 20's. More time to save, enhances your chances of having the kind of retirement lifestyle you want.

If you're in your 40's or older and haven't saved much (or anything) yet, you may face a challenge in building the retirement fund you need. The shorter your time frame, the less room you have for error. But don't panic - it's never too late to start saving. You may still be able to secure a comfortable retirement for yourself, but it may require you to make some tough choices. Here are a few tips if you're getting a late start:

• Save as much as possible: The more you save, the more you'll have when you retire. Try to maximize your contributions to IRAs, 401(k)s, and other tax-advantaged vehicles. Then supplement your retirement fund with mutual funds, savings accounts, and other investments.
• Cut current expenses: Chances are, not all of your expenses are absolutely essential. If you can wipe out or trim certain expenses, such as videos, expensive coffees, and daily lunches out, you'll free up more money to invest in your retirement.
• Invest more aggressively: This can help you build a large retirement fund in a short time. Certain stocks and mutual funds may enable your savings to grow more rapidly. The tradeoff: These investments are subject to market risks, which will expose you to greater volatility, including a possible loss of principal.
• Delay retirement: You may have no choice but to delay your retirement until after age 65. This strategy will buy you more time to build your nest egg. Plus, the more years you work, the fewer years of retirement you'll have to fund.
• Rethink your retirement goals: Set more realistic goals for your retirement (no beach house on the Riviera, for example). That way, you won't need as much money to fund your retirement.

If you fear you're getting too late of a start, or you're not sure where to start, consult a financial professional. He or she can help you map out a plan to bridge the gap between where you are now and where you need to be when you retire.

Set up an appointment today with a TCU Investment Services Representative.

The Right Income Plan for Your Retirement
Retirement can last 30 years or longer. To make sure that you have a comfortable income for the length of your retirement, it is important to build a retirement income plan that will allow you to turn your many years of savings into a reliable and sustainable retirement paycheck.

Choose the Right Age to Start Taking Your Social Security Income
Social Security represents a significant portion of many retirees’ incomes. As a result, it is important to ensure you
are maximizing your Social Security benefit by choosing the right age to start your benefits. For those born between 1943-1954, the age when you can receive your full Social Security benefit is 66. However, you can begin your Social Security payments earlier or later than age 66. The choice is yours. Either choice will have a noticeable impact on your income today and in the future. The decision to start receiving Social Security income is a personal one based
on employment, health and income needs.
 
Diversify Your Taxes
Take a quick look at your retirement savings and you may see accounts and investments with different tax statuses. The three most common tax treatments are; taxable, tax deferred and tax free accounts. Since tax laws and rates are likely to change during retirement, it can be prudent to establish multiple retirement income sources with varied tax treatments. This approach gives you and your family the flexibility to work with your Financial and Tax Advisors to find ways to optimize your income choices and minimize your taxes as tax laws change.
 
Determine a Realistic Withdrawal Rate
One of the key questions you need to ask yourself is: “How much can I take from my retirement accounts?” As a general rule, you can withdraw 3% to 5% every year without undue concerns about running out of money.* When making your retirement income plans, make sure your calculations do not stray too far from this useful rule of thumb.

If you have any questions or would like to provide feedback regarding the information presented in this article, please contact a TCU Investment Services Representative.
 
*Source: Bureau of Labor Statistics by the U.S. Census Bureau, 2008 Consumer Expenditure Survey. Based on a 30-year retirement.

Do I Save for My Retirement or My Children’s Education?
Many Americans are facing a difficult choice. Do they save for their own retirement or save for their children’s education? Here are some things to think about when wrestling with this decision.

 

Are You Paying for College or Helping to Pay?
Some parents decide their kids should contribute financially to their own education because they will better appreciate the value of their college education. Other parents ask their children to contribute to their education because they cannot afford to bear the expense completely. In either case, this can make a big difference in the amount you need to save for your retirement.

When It’s One or the Other
What happens when there just isn’t enough disposable income each month to fund both your children’s education and your own retirement?  Many financial experts agree that retirement funding should be your first priority. Here’s why: Your kids can always borrow money to go to school. You can’t borrow to retire. Your kids have decades ahead of them after they graduate to make money and pay the loans back. You have decades ahead of you when your savings need to support you. Additionally, your kids can work through college and take longer than the traditional four years.  You may be forced to retire early due to poor health or a bad economy.

A Personal Decision
If you cannot fully fund both your retirement and savings goals, your first step should be to work with a financial advisor who can help you make the right choices for your personal circumstances and maximize the potential of what you can invest.

Contact a TCU Investment Services Representative for a no-cost, no-obligation Retirement Planning Consultation. Today is the best time to get started!

Tax Efficient Investing: A Smart Choice
Taxes can take a chunk out of your investment returns.  Employing some of these strategies could help you retain more of your potential investment earnings and lessen your tax burden.
 
Buy and Hold
Following a buy-and-hold strategy for your stock investments may save on taxes in the long run. Not only do you postpone taxes the longer you hold, if you hold your investment long enough, your gains might be subject to the lower capital gains tax rate. Capital gains are generally taxed at 15% on investments you hold longer than one year.  Gains on investments you've owned one year or less are taxed at your regular federal income-tax rate, which may be as high as 35% in 2008.
 

Consider Tax-Exempt Investments
Tax-exempt investments, such as municipal bonds, give you income that is generally exempt from Federal Income tax. If you want income rather than growth, municipal bonds may be a good choice.
 

Take Advantage of Qualified Plans
Participating in an employer's 401(k) or 403(b) plan reduces your tax obligation because your contributions are not considered part of your taxable income in the year you contribute to them. Additionally, taxes on your earnings are deferred until you withdraw funds from the plan.
 

Explore IRAs
IRAs are another option to consider, but you need to determine if your contributions to a regular IRA may be tax deductible. Roth IRAs are slightly different. Although contributions to a Roth IRA are not deductible, account earnings are tax deferred and can ultimately be withdrawn from the Roth IRA income-tax free provided certain conditions are met.
 

Invest Tax Smart
Keeping as much of your hard-earned money as possible is the goal of tax efficient investing. Your financial advisor can help you explore all the ways you can invest with the goal of minimizing taxes.

If you have any questions, or would like to provide feedback regarding the information presented in this article, contact a TCU Investment Services Representative.

What is an IRA?
A traditional individual retirement account or individual retirement annuity (IRA) is a personal savings plan that offers tax benefits to encourage retirement savings. You can contribute up to the lesser of $5,000 in 2010 and 2011, or 100 percent of your taxable compensation to a traditional IRA. In addition, individuals age 50 and older can make an extra "catch-up" contribution of $1,000 in 2010 and 2011. Funds in a traditional IRA grow tax deferred until they are withdrawn. Contributions may be fully or partially tax deductible, depending on certain factors.

 

Prerequisites

• You have not reached age 70 1/2 during the year of the contribution
• You have taxable compensation (i.e., wages, self-employment income) during the year
• You can deduct the full amount of your contribution, provided that you are not covered by an employer-sponsored retirement plan
• If you are covered by an employer-sponsored retirement plan, your IRA deduction (if any) depends on your modified adjusted gross income (MAGI) and your federal income tax filing status. You will be entitled to a partial deduction in 2011 if your MAGI is less than:

1. $66,000 if your filing status is single or head of household (less than or equal to $56,000 for a full deduction)  
2. $110,000 if your filing status is married filing jointly (less than or equal to $90,000 for a full deduction) 
3. $10,000 if your filing status is married filing separately (full deduction not available)  

Note: These income ranges are for the 2011 tax year, and are indexed for inflation.

Key Strengths

• Deductible contributions are made on a pre-tax basis
• Funds in traditional IRAs grow tax deferred until they are withdrawn
• IRAs offer a wide range of investment choices
• $1,171,650 (as of April 1, 2010) (and in some cases more) of IRA assets are protected in the event of bankruptcy under federal law

Key Tradeoffs

• Your ability to deduct contributions may be reduced or eliminated if you are covered by an employer-sponsored retirement plan
• Funds you withdraw from a traditional IRA are taxable income in the year received (to the extent the withdrawal consists of deductible contributions and investment earnings)
• Withdrawals taken before age 59 1/2 may be subject to a 10 percent premature distribution tax (subject to certain exceptions)
• Minimum annual withdrawals are required when you reach age 70 1/2 (required minimum distributions)
• Taxable portion of distributions will be taxed at ordinary income rates, even if funds represent long-term capital gains or dividends paid on stock held within the IRA

Variations from State to State

• States vary in their protection of IRAs from creditors
• States differ in their tax treatment of IRAs

How Is It Implemented?

• Open an IRA with a bank, financial institution, mutual fund company, life insurance company or stockbroker
• Select types of investments to fund the IRA (e.g., CDs, mutual funds, annuities)
• Make contributions up to the due date of your federal income tax return for that year (usually April 15 of the following year), not including extensions

Set up an appointment today with a TCU Investment Services Representative.