RP4YA - Retirement Planning for Young Americans

Is Tax-Deferral always a good strategy?

Kristin — Thu, 17 Jan 2008 18:35:31 GMT

Some believe that deferring tax on income is not such a great idea and that you should pay your taxes now. It's possible that, if the Democrats win the Presidential election and have control in Congress, the income tax rates could rise above where they are now. If that were to happen, then those who previously deferred paying taxes will end up paying a higher rate (if it stayed that way when they turn 59 1/2).

Any comments on tax-deferreal as a strategy?

Do I need life insurance if I'm single and have no kids?

Kristin — Thu, 17 Jan 2008 18:35:31 GMT

Some financial planners view life insurance policies as part of building wealth. Any comments from either those who have opened polices for this reason or from Professionals with comments?

Because Health Care Will Be a Big Part of Getting Older....

Kristin — Sat, 12 Jan 2008 13:39:05 GMT

Americans are living longer, no question. Diseases and illnesses that killed people just 30 years ago now only cause a blip on the radar screen of life. But to live longer and healthier, most of us will pay much, much more.

If you retire at 65 but live until 95, how will you pay for your medical care for 40 years? Will you rely on Medicare? Will there be enough left over after the Baby Boomers use it all to also take care of you? Will you rely on Medicaid (if you have a low income and/or are disabled, yes you might). But if you plan to have freedom and wealth, you can start taking advantage of some tax breaks now in the form of Health Savings Accounts.

Health Savings Accounts (HSAs) were created by the Medicare bill in 2003 and are designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis. Your parents (or even you) can open a Health Savings Account and have the money invested for a positive return, and then withdraw the money, on a tax-free basis, to pay for various health care expenses. Again, this puts the power of compounded interest in a tax-free environment to work.

After all, medical expenses are not likely to go down, and as we live longer, we usually pay more to do it.

For more information: http://www.treas.gov/offices/public-affairs/hsa/pdf/HSA-Tri-fold-english-07.pdf

Why is College Savings on a Retirement Blog?

Kristin — Sat, 12 Jan 2008 13:32:59 GMT

If you are not saving for retirement because you're saving for college for your kids, then you will have nothing for yourself, and that's why Saving for College is on this website!

Which is more likely: your kids will get a low-interest loan for college, or you'll get a low-interest loan when you're 65, with no income, to retire and live well for another 30 years? Exactly.

As parents, we are responsible for our kids. But are they responsible for us? If we don't plan for our own retirements, they will have to take care of us. That's what putting them through college might do to us, and them.

The answer is different for all of us...how many kids? Married? Divorced? Income?

Find a Financial Adviser who can help you consider all facets of your life - retirement planning, saving for college, life insurance, estate planning, your family business, your taxes, etc. It is complicated and we all need this help.

JUST DO IT.

Are Your Own Parents Prepared?

Kristin — Sat, 12 Jan 2008 13:32:59 GMT

Our generation is called the "sandwich generation" because there are more people born before us and more after us. We're like the middle section of the hourglass.

What this means is that we have to plan for ourselves, and possibly our own parents and our kids...all at the same time. If you are under 40, your parents might be Baby Boomers, people born from 1946-1964. And they're all hitting retirement age starting in 2007 and it will keep growing.

Why should you care?

Well, on a personal level, your parents might not have enough money to last them into their 90's. Do you know that the average life expectancy in the US is rising? Think about it...medical care is always improving, people are living longer with diseases like diabetes and cancer. There are replaceable parts like hips and knees! People who retire at 65 can live well for another 30 years or so. Who is saving for that???

You and/or your siblings might have to help them - can you afford it? Aren't you trying to save for your own retirement? Aren't you also trying to save for college? Aren't you also just trying to get by day to day? Paying your mortgage, car payments, gymnastics, karate, summer vacations, gym memberships, eating out, etc.?

On a National level, Social Security and Medicare have to support all these people - and you are paying for it. So if it all gets used up on the Baby Boomers, will there be any left over for you when you're old? Maybe not. Hence the term, "Social InSecurity."

So talk with your parents and find a professional adviser to work with them to make sure they'll have enough money to last them. Find yourself one too and I mean NOW!

If You're Working, You Should Be Saving - And Hurry Up!

Kristin — Sun, 13 Jan 2008 16:29:32 GMT

Unlike your fellow Americans on this blog in their teens and twenties who are getting a head start - you are getting a late start saving for retirement.

I know 30 is the new 20, you're delaying marriage and parenthood, focusing on your career, living it up, blah, blah, blah. Well guess what, you'll be 60 someday too and if you aren't already saving, you're behind.

People in their teens and 20's have the power of compounded interest, or "time value of money" on their sides. They probably don't make anywhere near what you make, but they have time that you don't.

Consider this:

$1000 invested ONE TIME equals the following in 50 YEARS

5% annual interest 10% annual interest 15% annual interest
$11,467 $117,391 $1,083,657

So you're better off starting earlier and getting lower returns than waiting and hoping for a higher interest amount.

This is my message to you - get thee to a financial planner and/or CPA immediately and get started. Every year that you put it off the harder you're making it for yourself.

If You're Working, You Should Be Saving!

Kristin — Sun, 13 Jan 2008 14:37:16 GMT

It doesn't matter if you're babysitting once a week during college, working at Best Buy, landscaping, or working full time on Wall Street...you can and should be putting a little bit away each paycheck or each month for retirement. I know it seems too far off to even think about, but it will happen to you as it happens to everyone else.

Do you want to be living in a run-down house or apartment, or in 1 room in your own kids' house or do you want the freedom that money can give you to live where you want, travel, enjoy going out to dinner, etc.

Look at your own parents and grandparents and their friends...compare the way they live to what you will want.

You can put up to $5000/year into a ROTH IRA (as long as you don't make too much money!). The contributions you make are after the government have taken taxes out, but that money will be tax-free to you for the rest of your life...and not just the money you put in, but the interest that it makes is also tax-free.

That's about $425/month or $100/week. If you can't afford $100/week, put $25/week in.

If you can get $1000 in your ROTH IRA this year that will turn into $11,467 (5% annual interest), $117,391 (10% annual interest) or $1,083,657 (15% interest) in 50 years. ONE $1000 INVESTMENT!

If you do not qualify for a ROTH IRA because you make too much money, then you can have a Traditional IRA which allows you to put $5000/year in before taxes are taken out on that money. The government will tax that money when you take it out, but that's when you're 59 1/2. Again, the interest that accumulates until then does so on a tax-free basis, the only tax is upon withdrawal.

If you work for a company that offers a 401K Retirement Plan (ask your HR department or boss if you're not sure) then you should absolutely start putting money in because they probably match your contributions every year...that means they put money in when you put money in. And you can put up to $15,500 in each year unlike the IRA we discussed above.

Finally, if you're in your 20's and working for yourself or your family, there are other types of plans that will be better for you so find an accountant immediately and ask them how to get started. When you're 70 and living comfrtably in Tahiti, you'll thank us!

Your Kids Have Can Have Retirement Plans

Kristin — Sun, 13 Jan 2008 14:37:40 GMT

Did you know that even kids can have retirement plans? Many people open ROTH IRAs for their kids because they understand the power of compounded interest in a tax-free account.

If you only put $1000 in one time and let it sit in a ROTH IRA account that gets 5% annual interest, your child will have $11,467 in 50 years.

At 10% annual interest they'll have $117,391!

At 15% annual interest they'll have $1,083,657!!!!!

So the next time the grandparents ask what to get your kids, tell them a ROTH IRA!

Consult your accountant for more information.

Message from RP4YA President

Kristin — Sat, 12 Jan 2008 14:51:57 GMT

Congratulations for finding "Retirement Planning for Young Americans" - you are already ahead of the game!

Welcome to our site www.RP4YA.com and our blog.

Visit here often for information on how much to save, how to do it, where to put your savings, how much to contribute, etc.

I rely upon licensed professional advisers such as Financial Planners, CPAs, Estate Planning Attorneys, etc. to provide sound advice and insight to our community of Americans under 40.

Always consult your own professional adviser before investing or opening an account somewhere.

"Join to learn, to teach, to prosper."

Kristin Scott
k2escott@gmail.com
President, Retirement Planning for Young Americans
www.RP4YA.com