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Retirement Savings

Retirement Savings

 - Introduction
 - Types of Tax Incentives
 - Maximize Company
    Savings Plans
 - Automatic Savings
 - Contribution Limits
 - Types of Retirement
 - Small Business &
    Self-Employed Plans
 - Asset Allocation
 - Educational Savings






Many investors believe that saving for retirement officially starts when you open a retirement account. In reality, however, retirement savings start when you begin to accumulate equity. Until you have equity, you have nothing. Equity is the quotable market value of one’s assets, less any associated debt. Assets are anything that can be monetized into cash. Investing in real estate, for example, is saving for retirement. Many individuals have multiple properties generating a positive cash flow. Equity accumulates as the mortgages are paid down and property values increase. Some individuals live in oversize homes, with the intent of building equity, while enjoying their savings. When retired, they down size to a less expensive home and live off the difference as a retirement fund. There is no right or wrong way to build equity. Small business owners, for instance, often buy the building instead of renting space. The building then becomes their retirement nest egg when it is paid off. Savings in the form of precious stones and metals is also acceptable, if you know how to convert these assets into cash. Collectables and personable property, however, are not retirement savings. Enjoy them for what they are. Typically, these are not reliable sources of equity, and would only be counted as savings when they are converted into cash; not one second before. Any equity that can be converted to cash is savings, to be used as one sees fit, including retirement. All your equity, however, should not be tied up in your house. You need both a place to live and a cash flow to supplement social security in retirement. Pensions and retirement accounts are the “main stream” methods of providing a cash flow, when you are no longer able to work.

Company sponsored pension plans, while greatly diminished over the past few decades, still exist in some business enterprises. As firms downsize pension plans, they usually switch over to company matching 401(k) plans, giving employees greater control over their retirement assets. Employees should only consider pensions or 401(k) plans as equity, when the balances are vested. Additionally, uncertainties exist until one’s pension is both vested and funded. It’s not unheard of to get laid off immediately before being vested or a company going out of business and unable to pay its future pension commitments.

To protect its elderly citizens and to promote saving and investing, the government established tax incentives for certain savings and investment accounts. These, primarily retirement accounts, are intended to help maintain adequate living conditions for individuals in their twilight years. Retirement accounts are protected under the law and contain rules, restrictions, and other safeguards to help ensure that financial assets are available upon retirement.

While retirement plans are normally invested in financial assets, there are no guarantees that these assets will maintain their worth in the future. Depressions, recessions and business failures happen; the value of financial assets can change quickly, and in some cases, can evaporate overnight.

For the purpose of this website, we are discussing tax deferred retirement and savings accounts. IRAs are personal retirement accounts, while 401(k)s are business retirement accounts. Contributions drive the tax benefits, while withdrawals mainly trigger any tax liability.

Next review information on: The Types of Tax Incentives.


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