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Would you ever consider going to jail in order to be taken care of in your retirement years? As shocking as this idea sounds, some older Japanese have done exactly that in order to be taken care of, as described in this article from BBC. They’ve run out of money and see no alternative.


This is an extreme example, but if you don’t plan for your retirement years while you still have the means, you could end up at the mercy of an unforgiving government.


If you are following the Dave Ramsey Baby Steps to get out of debt, your time to start saving for retirement will be on Baby Step #4. If you’re not, the time is NOW! If you can manage it it’s best to set your retirement so that you have more than one stream of income. Here’s how…



Social Security



Ever wondered who that FICA guy is that takes money out of your paycheck every week? Meet the Social Security Administration. Founded in August, 1935, SSA administers benefits for both retired and disabled Americans. We’re going to focus on retirement benefits here.


If you haven’t signed up for an account with SSA, you can do so by clicking here. Once you’ve signed up, you can run an earnings report. Check the report to make sure your earnings have been reported accurately, and see what your Social Security benefits will be at retirement. This data changes frequently so it’s a good idea to re-run the report periodically.


No doubt you’ve seen reports on the news about how Social Security is going to run out of money in so many years. I have to admit I don’t always trust these stories but I’m not so cynical that I discount them, either. I titled this post “Don’t Wait for Government” because of the uncertainty regarding the solvency of Social Security. If it’s still there when you retire, consider those funds extra-in order to fund a comfortable retirement you must set money aside now and not rely on someone else to do it for you. Where it goes depends a lot on your individual circumstances.



Employer Retirement Plans



While there are still a few employers out there who offer a pension, most of us are offered plans to which we are required to make regular contributions. The most common are the 401(k) and 403(b) plans. These plans are named after the section of the Internal Revenue code that covers them. Government employees and military members are able to contribute to what is called a Thrift Savings Plan.


The common thread to all of these plans is that the money you contribute is made up of pre-tax earnings. Many companies will also match a certain amount of your contributions so it’s best to contribute at least the percentage required by your company to earn the match. Don’t leave free money on the table!


Because you’re contributing pre-tax money to your retirement plan, the earnings will be taxable upon withdrawal. Also, there are restrictions to when you can withdraw funds from these pre-tax plans without penalty. Consult a tax professional to learn more about how your retirement plan will affect your tax situation, and if you’re not comfortable allocating the funds yourself, consult a Certified Financial Planner for advice.



Self Funded Retirement Plans



The most common self funded retirement plan is the Individual Retirement Account (IRA). There are 2 types – the Traditional IRA and the Roth IRA.


In a Traditional IRA, your contributions are tax deductible but you will pay income tax at the current rate on the withdrawals. With the Roth IRA, you are contributing money that has already been taxed so the withdrawals, both principle and earnings, are typically tax-free.


As with the company plans, there are restrictions and penalties for early withdrawal. Be mindful of these limitations when contributing to an IRA, especially if you think you might need the money you’re contributing for something else later. Having a fully funded emergency fund is strongly recommended before you start contributing to an IRA.



Simplified Employee Pension



Smaller businesses and self employed people can also choose to contribute to a Simplified Employee Pension, or SEP. I’m not familiar with them or how they work but I wanted to include something about them here in case it fits your situation. I found this resource at FitSmallBusiness.com that you may find helpful.


As with all the other retirement plans listed, be sure to consult a tax professional to review how any retirement plan will affect your taxes and consult a Certified Financial Planner if you need assistance allocating your funds.


The moral of the story…if you want to retire comfortably you absolutely MUST start putting money aside now. Don’t count on government or anyone else to do it for you.


Be well and God Bless – until we meet again…

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