2009 April | Have a GREAT retirement

How Retirement Planning Software Helps You

Are your ready for retirement? Have you been investing your monies over the years, saving 401ks, and actively planning for retirement? If so, you’re in the distinct minority. Well over 90% of retirees are totally unprepared when the time comes. As a result, they end up living their retirement years in far different circumstances and environments than they had envisioned.

No one is going to take responsibility for your retirement except you. The people that end up satisfied in retirement are the ones that figured that out early on If you don’t plan for retirement, you could easily find yourself impoverished when you reach retirement age.

One way to begin planning for retirement is to use retirement planner software. These types of software can make retirement planning a snap. But what do you look for in a retirement planning software tool? First, the software should be user friendly. Experts will tell you that if a piece of software is hard to use, it won’t get used. Secondly, you should look for software that is well supported and, preferably, with a history. You don’t want to be in a situation where you’ve spent hours and weeks entering all of your financial data into a program only to find out that the company has gone out of business and no longer supports the software. Sometimes, it’s worth paying a little bit more for a piece of software in return for having the support of a substantial company behind it.

Thirdly, an essential feature in a retirement planning software tool is for it to be able to track stocks, bonds, 401ks, IRAs, and other common financial investment instruments and including them in the retirement calculations. It should be able to extrapolate how much a regular series of payments over a specified time frame at a specified interest rate will result in at the time that the person retires. And it should be able to work backwards as well. For example, assuming that you are 35 years old. The tool should be able to take your desired income requirements at 65 years, and determine how much you will have to save each year in order to reach that goal.

It’s not mandatory that you actually use software to plan your future. Plenty of people, especially if they have the money, are more than comfortable with leaving their retirement planning services in the hands of a professional. Even in these cases, however, it doesn’t hurt to use retirement planning software to get an idea of the possibilities available to you. You can then take these broad suggestions to your financial planner for implementation of the finer details or simply for a more informed feedback of the desirability of your plans. But also, keep in mind that financial planners aren’t gods. And they are dealing with multiple clients. It’s very possible that your tool may discover something that they missed in putting together you financial portfolio.

For many of the baby boomers beginning to reach retirement age, it’s too late to put a long term retirement plan in motion. But even they, can make use of software to ensure that the monies they do have last as long as possible. As, for the younger workers, the best time to start thinking about a retirement plan is when you’re young. The younger you start, the less painful are the financial sacrifices that you have to make.

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Why A 401K Plan Is Good For You

Social Security is a great safety net and helps many retired people to survive in their old age. But Social Security was never meant to be the sole source of income for retirees. It was only meant to be a supplementary source of income to a person’s pension payments and other investments. Recognizing that people were not saving their money as diligent as they perhaps should, the government began to create incentives to help them save. The 401k plan came about as a way to encourage people to save money for their retirement years by giving them certain financial incentives.

But, retirementplanhelper.com/what-is-401k-plan.html">what is 401k plan. It’s a retirement plan designed for workers in a company. The plan is set up so that both employer and employee can contribute to it, but it’s managed by the company. The necessary, but enormous, advantage of a 401k plan is that it allows you to invest your money before it is taxed. All monies that you earmark for the 401k are placed into the plan pretaxed. Not only that, the monies are also allowed to interest, also untaxed until the time when you begin to withdraw it – usually at retirement. But even then, only the monies that you withdraw from the fund is taxed. And presumably, since you’ll be at a lower income level when you retire, the amount of money that you will be taxed will be lower as well.

The best piece of the 401k program is that it compounds your money tax free. The compounding effect can catapult your ultimate retirement income earnings upwards of thousands or even hundreds of thousands of dollars more than if the identical investment had been placed in a normal taxed investment vehicle. Assume, for example, that you’re in the 25% tax bracket, have $1000, and you invest it in a venture that is pays you 8%. At the end of the year, you will have earned $80. But when you take out taxes, you have have only $60 left – effectively meaning that your real return was 6%, not 8% as you had hoped. If your investment vehicle had been a 401k, however, you would have paid no taxes at the end of the year. Thus you would have netted the full $80.

Now eventually, of course, you’ll have to pay taxes – but in the meantime, you have the full use of all profits derived from your investment and are able to let them compound unencumbered. If you invest more than $1000 a year in your 401k plan, which many people do and if your investments average more than 8% a year, you could realistically come out thousands of dollars ahead when your retire.

Some employers entice workers to join their company by touting their generous 401k packages. In better economic times, it was not unusual for a company to match the employee’s contribution with an equal amount of their own. For example, if you gave $100 to your 401k plan, they would match it with $100 from their pocket. A great way to make money on your investment.

However, finding these great 401 packages in the current economic downturn, will be a challenge. Less companies are able to afford to offer pensions to their employees.This makes it even more imperative that you take control of your own retirement plan. But still, even if your company has a 401k plan, but no matching program in place, you should still definitely take advantage of it. When you retire, you’ll be glad you did.

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