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Thinking about retirement? (July, 2023)

Dr. Mercy Otieno, Ph.D. Economics and Finance

© International Foundation for World Freedom


Retirement is when you cease to work and leave the workforce permanently. After retiring you have no income from employment, however, the social security fund provides you with a monthly income that is dependent on the amount you earned during your active work years and your age when you start receiving the money.


Ideally, the full -retirement age in the U.S. is 67 years (This is the age at which you collect full benefits when you retire). However, one can choose to start collecting their benefits as early as 62 years and as late as 70. The monthly benefit decreases if you start collecting early and increase if you wait longer.


It is advisable to plan for retirement, to ease the financial burden and not work at retirement. The following steps can help you;


1. Start saving for retirement

Savings go a long way, you can start small and increase your monthly savings as the years go by. Set savings goals and remain committed and disciplined to achieve them.


2. Know your needs at retirement

Since retirement is new to all of us, we need to determine how much we will need to set aside for daily expenses, healthcare, and recreation. The amount we set aside is dependent on our lifestyle and our health conditions.


3. Claim your social security fund at full retirement age

If you choose to retire before the age of 67, use other sources of funds such as your savings and other investment income until you reach full retirement. Delaying to claim your funds until full retirement enables you to receive more.


4. Take advantage of your Employers pension plan.

If your employer offers a payment plan such as 401k enquire if you are covered by it. If you are covered take advantage by learning how it works and and maximize your contribution. Most employers will match your contribution to the plan. Additionally, there are additional benefits such as deferred taxes i.e. Your total contribution will reduce your taxable income on a dollar-by-dollar basis, for example, if you earn $120,000 and contribute $15,000 to your 401k, your taxable income will be reduced to $105,000.


5. Invest your savings

Keeping money in your savings account does not earn you much for retirement. Diversify your savings by putting the funds into different investment assets in the market. You need the help of a professional to determine the options that best suit your needs.


6. Open an individual retirement account

Individual Retirement Accounts (IRA), provide an easy way to save money, you can put in $6,500 or contribute more (up to 7,500) when you are above the age of 50. You can choose between a traditional IRA or a Roth IRA.

Options for investing for retirement

There are several options for investing for your retirement ;

  1. IRA

IRA was established by the U.S. government to help workers save for retirement. There are different types of IRAs.

  • Roth IRA

This is an IRA that offers huge tax benefits as payments are made with your after-tax income. Therefore you do not have to pay taxes as you withdraw from the IRA.

  • Spousal IRA

Spousal IRA allows the spouse of an employee who is a beneficiary to contribute to the IRA as well. The employees' taxable income must be more than the contribution to the IRA.

  • Simple IRA

This provides benefits to all employees. The employer decides on the percentage they contribute for each employee, regardless of whether they contribute to the fund or not.

  • SEP IRA

This is an IRA for small business owners and their employees. Self-employed individuals can also befit from it.

  • Rollover IRA

This happens when you move your funds from a 401k or an existing IRA into a new IRA. This account allows you to convert a traditional 401k or a traditional IRA into a Roth IRA. One can still benefit from the tax benefits of an IRA.


2. Life Insurance

Life insurance was meant to protect loved ones, however, it earns cash value over time and can be used as a source of income flow at retirement. This amount is guaranteed regardless of the status of the economy and the market. The amount withdrawn is tax-exempt as long as it does not exceed the amount you put in as a premium.


3. 401(K)

The 401k plan allows employees to contribute to the plan with their gross income. The taxes are only deducted when they withdraw from the plan. While you may withdraw your money at any time. You may be subject to taxes and penalties when this happens before you reach 59.5 years old.


Other plans include 457b (plans that are provided for state and local government organizations), solo 401k (That is designed for a business owner and her spouse), and 403b plan (for charities, public schools, and other churches).


4. Traditional Pensions

These are provided for solely by the employee and provide the employee a certain monthly amount at retirement. This plan ensures financial security as it helps you not run out of money at retirement.



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