When we do our tax work at CPA Accounting and Tax Solutions, we are amazed at how little people are saving towards retirement. We are even more amazed at how many retirement age people have little or no savings, and expect to work indefinitely. While there is absolutely nothing wrong with working beyond the traditional retirement age, working is a lot more fun when it is not motivated with economic survival.
Outside of state and federal Governments, and a very few large companies, the defined benefit pension is a thing of the past. As a reminder, these defined benefit pensions paid you a fixed monthly amount upon retirement, based on your years and earnings. In some cases you could take a lump sum, and handle your own retirement needs.
In their place, companies created voluntary 401K plans into which you save for retirement, often with a company match of some portion of your contributions. Contributions to these 401K plans are pretax, meaning you don’t pay taxes until you withdraw the funds at retirement. Please see our other blog articles in the “Saving Series’, on CPA Accounting and Tax Solutions’ web site, which provide more detail on both pretax, and post tax retirement savings vehicles. We don’t present detail on savings vehicles in this article, focusing entirely on the NEED TO SAVE.
Our purpose here is to encourage you to begin saving for your retirement, and to motivate you to start saving now. Social Security does not provide sufficient income on which to live comfortably. You will be far more active than you think, and most likely you will live longer that you think. Contrary to what you may think in your younger years, your appetite for an active comfortable life does not diminish at all in your retirement years.
In short, you will need a lot more money in retirement than you think, and you need to begin a systematic savings program now.
- Create a payroll deducted savings plan, so you never receive the funds.
- Increase the savings amount with each increase in pay.
- If you are self employed, have your accounting firm help you create and fund your retirement through systematic savings. CPA Accounting and Tax Solutions can help you with these issues.
In closing, DO NOT ever withdraw from your qualified (pre tax) retirement savings unless absolutely necessary. Our next blog article discusses the tax implications of these withdrawals.