Approximately one-third of Americans do not plan for retirement, and have little or no accumulated wealth when the time comes. Retirement planning is difficult for many people, as it typically requires some financial sacrifice during the working years, which may make it more difficult to make ends meet. But it's crucial to make sure you don't out live your money. Proper retirement planning offers a number of advantages, even if you plan to continue to work during your golden years.
You'll probably want to maintain the same lifestyle and standard of living in retirement that you experienced during your working years. This won't be possible unless you plan enough in advance. Retirement planning helps to ensure you'll have the funds available to replace the income you no longer receive from a job. You'll be able to afford to stay in your current home if you wish, and you won't have the stress caused by worrying over how to pay the bills due to a greatly reduced income level.
You'll be able to take advantage of the tax benefits offered through retirement planning long before you actually stop working. Investment vehicles such as a traditional IRA or a 401(k) plan offered by many employers allow you to reduce your taxable income in the years you make contributions. These products also accumulate interest on a tax-deferred basis, meaning you don't pay taxes on the earnings until you begin to withdraw funds. Some companies will match up to a certain portion of your 401(k) contributions. If your employer does this, take advantage of this as much as you can as this is essentially free money.
Social Security Uncertainty
Since the introduction of Social Security in the 1930s, many retirees have made these government-supplied benefits a cornerstone of their retirement program. However, with the debate over whether the federal government will be able to maintain the current level of Social Security benefits it provides as of 2011, retirement planning may be even more important in the future. Workers who develop and implement a retirement planning strategy that does not rely heavily on Social Security benefits may stand a better chance of providing a comfortable retirement.
Providing for Loved Ones
Planning for retirement helps you provide for your loved ones after you pass. If you die before you retire, many types of retirement plans allow your accumulated funds to pass on to your spouse. If you live to a ripe old age, you can leave any remaining retirement money as an inheritance for your spouse or children at the time of your death. In the process, you'll be helping them enjoy a more comfortable retirement. But to do this, you must make sure to update your beneficiary designations so they reflect how you want your wealth distributed after your death.
- Photos.com/Photos.com/Getty Images