Individual Retirement Accounts

9 Pages 2137 Words

Many people often live their lives without considering how they plan to retire. People do not realize that the idea of living solely on the benefits of social security is not realistic. In order to secure a comfortable future, people must have some type of additional income. Sacrificing a small amount of money into an IRA at a relatively early age could make a considerable difference in the lives of people upon retirement. When planning for retirement, Individual Retirement Accounts offer several benefits; however, careful planning is essential to ensure that: upon retirement there is an adequate amount of money saved, that the heirs to the IRA are chosen carefully, and that unnecessary taxes and penalties are avoided.
It is important to consider how much money will be needed for a comfortable retirement. Careful planning is essential when considering an item with such importance. Phaneuf states that, according to figures used by most financial planners, upon retirement the average person will need roughly seventy percent of their current income to continue living their present lifestyles (94). With only income from Social Security and money saved in bank accounts, most people are unable to achieve this goal. Furthermore, one must also consider, for a retirement account to be effective the account has to maintain interest rates above that of inflation. Inflation increases approximately four percent annually; and standard bank accounts barely beat this rate. In fact, at present, most savings accounts have an interest rate below four percent. Thus, regular savings accounts are not a practical method to save for retirement; however, IRA’s offer deferred taxes on the interest e!
arned until the money is withdrawn from the account. Therefore for a given amount of money, there is a considerable advantage when saving in an IRA. In order to qualify for an IRA one must make under $95,000 and if married under $150,000....