By Professor Anthony Rivieccio MBA PFA
In last week’s article, we talked about some basic truths regarding Retirement Planning. We talked about how important it is to save and invest early. We talked about how inflation can eat up your money. We also briefly discussed when is it right to retire and for how long.
This week we will talk about the products one must use to achieve those goals
You already have a retirement product with the Government. Yes, 80% of Americans are covered. Employers & Employees normally pay 50% each (8.25%) to your fund. In totality, social security, when eligible pays for not just your retirement benefits but also : survivor, disability and Medicare.
The amount one receives, generally speaking, depends primarily on your working earnings. At age 62, you can receive your minimal amount. If you wait till age 70, you can receive up to 30% more than your minimum. Most financial planners will tell you sadly that this will only make up around 30% of the retirement savings you will need
This is a life insurance contract with a insurance company that commits to periodic payments for either a limited number of years or for your lifetime. Much like a bank account, the annuity account grows based on your contributions and interest rates. The payout, considered a long term benefit, besides investment income is also based on: mortality and cost of operations. Annuity accounts are tax deferred, meaning you do not pay taxes on the money until distribution.
Qualified Retirement plans
Employers are required to provide you a defined pension or contribution program. These plans , like other retirement plans , provide favorable tax treatment. An employer can deduct their annual contribution and the employee contribution is not included in your gross income.
The investment income earned , is not taxable income and the monies grow tax deferred.
In this area , there are 2 major plans: a Pension plan, or a Money Purchase, which is a fixed interest account, or a 401k , which is a non fixed interest plan.
The simple but important difference is that the pension account is invested in short term instruments that the company controls while a 401k plan, allows the Employee not the employer to invest the monies.
Financial Institution accounts
Today, one can use banks, brokerage and financial advisory firms to use retirement instruments like: IRAs & Keoghs.
An IRA ( Individual Retirement account) is an account that you would contribute to yearly in after tax dollars. Because it is after tax dollars, the account will not only grow tax deferred – but also annually tax deductible.
A Keogh plan , is a ” self employed” retirement plan, that works similar to the IRA.
While their are other more sophisticated products, what one must remember with all retirement accounts is that you can not take out the money until what the government calls, the golden age of retirement, age 59 ½.
So I tell my younger Clients, consider this ” dead money”. If you can not use it, you might as well invest the money to beat the rate of inflation. Outside of a ” Pension” plan which you don’t control, the others put you in control to invest , from stocks to mutual funds.
If your younger, thirty years will be here before you know it. If your older, then you have to figure how long can your money last you !. Or in simple terms, do you want to outlive your money or is your money going to outlive you?
Professor Anthony Rivieccio, MBA PFA, is the founder and CEO of The Financial Advisors Group, celebrating its 24th year as a fee-only financial planning firm specializing in solving one’s financial problems.
Mr. Rivieccio, a recognized financial expert since 1986, has been featured by many national and local media including: Kiplinger’s Personal Finance, The New York Post, News 12 The Bronx, Bloomberg News Radio, BronxNet Television, the Norwood News, The West Side Manhattan Gazette, Labor Press Magazine, Financial Planning Magazine, WINS 1010 Radio, The Co-Op City News, The Bronx News, thisisthebronX.info, The Parkchester Times and The Bronx Chronicle.
Mr. Rivieccio also pens a financial article called “Money Talk”. Anthony is also currently an Adjunct Professor of Business, Finance & Accounting for both, City University of New York & Monroe College, a Private University.