Your school days may be behind you, but that doesnt mean you shouldnt test yourself on various subjects from time to time. And one of the most important topics you can study is Retirement Planning. So, take a couple of minutes to take this quiz. The answers – and even the questions – may prove valuable to you as you save and invest for retirement.
Have you put a price tag on your retirement lifestyle?
All of us have different ideas of the ideal retirement. Your brother may plan to travel the world, your sister may want to open her own small business and you may choose to volunteer. Once you know how you want to spend your retirement years, you can calculate about how much your retirement will cost. A financial advisor can help you arrive at a good estimate of how much youll need to spend per year.
Do you contribute to your 401(k) or other employer-sponsored retirement plan?
If you have a 401(k) or similar plan where you work, youll receive several key benefits by contributing. First, your money has the potential to grow on a tax-deferred basis, which means it can potentially grow faster than if it were placed in an investment on which you paid taxes every year. Second, you typically invest pre-tax dollars, which means your contributions can actually help lower your annual taxable income. And third, you can spread your dollars among a range of various investment choices.
Do you boost your 401(k) contributions every time your salary increases?
If you dont, you should. Your annual 401(k) contribution limits are pretty high: $15,500 in 2007, or $20,500 if youre 50 or older. Obviously, the more you contribute, the greater your chances of achieving your retirement savings goals.
Do you also contribute to an IRA?
Even if you contribute to a 401(k), you can put money in an IRA. A traditional IRA has the potential to grow tax-deferred, while a Roth IRA offers tax-free earnings potential, provided youve had your account at least five years and you dont start taking withdrawals until youre 59-1/2. (Income limits apply to the Roth IRA, however.) In 2007, you can put in $4,000 to an IRA, or $5,000 if youre 50 or older. And you can fund your IRA with a variety of different investments.
If youre self-employed, have you set up a retirement plan?
If you work for yourself, or run your own small business, youll need to set up a retirement plan. Fortunately, youve got many attractive options, all of which offer tax deferral and a range of investment choices. Depending on your situation, you can establish an owner-only 401(k), a SEP-IRA, a SIMPLE IRA or a Keogh plan. Your tax advisor can help you select the plan thats right for you.
Have you explored other retirement savings vehicles?
If youve maxed out on your IRA and your 401(k) or self-employed plan, and you can still afford to put away more for retirement, youll want to explore other investments, such as annuities, which offer tax-deferred growth potential and have very high contribution limits.
Theres no passing or failing grade to this quiz – but if youve answered yes to all the questions, then youre probably putting yourself in a good position to ultimately work towards your retirement goals.