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SAVINGS ADVICE—Planning Ahead to Ensure Retirement Security

The chance of outliving your retirement funds, or not having enough to retire comfortably, is more probable than ever. The average life expectancy is 77 years in 2000, according to the U.S. Census Bureau. Most people will live, on average, about three years longer. If you base your financial plan on the possibility that you will live an average life span, you may be making a big mistake. More years in retirement means you’ll need more funds to retire comfortably. Experts predict that it would take at least 70 percent of pre-retirement annual income to maintain the same standard of living at retirement. Everyone’s aware of looming problems with Social Security. Private pensions usually comprise about 30 percent of retirement funds. Considering that more than 50 million workers do not have pension plans , and that Americans’ household saving rate is near its lowest level since the Great Depression , how will you handle the shortfall? The standard of living you enjoy in retirement will depend on how well you use tax-deferred savings options, such as IRAs, and invest your money.


Tips For Saving For Retirement

Here are a few suggestions to consider:

o Participate in an employer sponsored 401(k) plan, or other automatic contributory retirement plan. Contribute the maximum portion of your salary that you can afford. The maximum annual amount you are allowed to contribute to a 401(k) plan in 2000 is $10,500. As an added benefit, those extra dollars in contributions reduce the amount you will owe in taxes at the end of the year. And, many companies will match your contributions up to a certain amount. A word of caution. If you are about to take a distribution from your company’s plan, make sure you carefully analyze the consequences. Cashing out could be costly. Hardship withdrawals, except in certain instances, can trigger serious tax consequences, starting with a mandatory 10 percent federal early withdrawal penalty tax.

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o If you haven’t already, consider opening an Individual Retirement Account to supplement your retirement savings. In some situations, it may be more advantageous to make contributions to a Roth IRA rather than a traditional IRA. Contributions to a Roth IRA are made with after-tax dollars and distributions are generally tax-free.


Diversify And Monitor Carefully

Select, diversify and monitor retirement investments carefully. Periodically review how your portfolio is allocated between stocks, bonds and cash, taking into considerations: the rate of return you hope to achieve on your investments, how much time you have to achieve your retirement savings goals, and how much risk you feel comfortable in taking. Typically, younger investors may invest more aggressively, in the equity or stock markets; more mature workers should consider more conservative portfolios as they approach their retirement years. To retire comfortably in the 21st century, you must make saving and investing a priority. A little planning and professional assistance can be the determining factor in whether your retirement funds last as long as you do. Miller is vice president-investments at Salomon Smith Barney in San Diego.

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