Are you ready for retirement?? Why would anyone below the age of 60 and full head of hair care about planning for retirement?

Is I was perusing through the internet I caught an interesting survey that came out on the topic of retirement and financial planning.

A 2009 National Consumer Survey on Personal Finance conducted by the Certified Financial Planner Board of Standards, Inc. is responsible for yielding the following results:

64 % of Americans have no financial strategy at all.

This includes: no plans to pay off debt, no goals to increase mortgage payment by $100 a month, no set age to retire at, no plans at all. I will be the first to admit that planning of any kind sucks- especially planning for retirement, something that won’t happen for another couple of decades. The thing is though, do you want to be that 60-something that is working just to pay the bills? It’s one thing if you love your job but what if you despise it?

Only 17% of American citizens have a written financial plan that is updated regularly.

This is the really tricky part. Many “financially conscious” people will write down a clear budget and set financial goals- once a year. I’m guilty of this myself. I will write out a detailed financial strategy but will seldom update it. If you want to be ready for retirement at a specific age, your financial plan needs to be updated meticulously and often. Yes often.

Setup a financial plan, unlike most people

The whole point of this blog is to help myself and the readers earn more passive income. Passive income is directly relating to financial planning because it is additional income that you can put towards you savings goals, retirement plans, credit card debt, mortgage, personal loans, etc. Through the process of increasing your passive income and having a clear financial plan, you will be better prepared for retirement than most Americans.

Have concrete goals that have a direct plan

I would recommend outlining clear girls that are directly related to a concise financial plan. It’s easy to say that you want to be debt free (pay off mortgage) by age 40 or retire by age 60, but how will you get there? What are your goals? What is your financial plan?

Why are you not planning for retirement?

At the end of the day you need to push all of the excuses aside and ask yourself why you really have not been planning for retirement? Maybe it’s because you are afraid of death. Maybe you are afraid of getting old and what will happen. Maybe you love your job so much that you can not fathom leaving it. Whatever the reason is, it’s important to pinpoint why you have not yet begun the process for planning for retirement.

Now I must ask you again- are you ready for retirement?

If your employer is currently matching all of your 401 (k) contributions then by all means stick with them. This however does not mean that you should not consider the traditional IRA. The traditional IRA is an amazing investment tool that I have discussed here in the past and plan on elaborating on further in the near future.

IRA Contribution Limits For 2010

All individuals under the age of 50 are allowed to contribute a maximum of $5,000 to their traditional IRA account in 2010. $5,000 a year but may a lot of extra income to put towards your income and it will require you to dig deep with your finances. For some it is extremely difficult to squeeze an extra $5,000 of of their respective budget, so you should try to match your maximum IRA contribution by as much as possible. If you are over 50 years old then the IRS allows you to deposit an additional $1,000 towards your traditional IRA retirement account.

Traditional IRA Compared To 401(k)

I have already compare the traditional IRA to the 401(k) in the past but there can never be too many comparisons when deciding on your retirement investment tool. If you leave your employer after you turn 55 years old then you are eligible to take all of your 401(k) retirement contributions with you without an penalties attached to it. Once you cover the taxes on the 401(k) there will not be an additional penalties.

You have the opportunity borrow money from your traditional IRA account whenever you may need it for a major purchase (home, wedding) or for an emergency situation (break down, medical bills). The traditional IRA offers a penalty-free $10,000 withdrawal for the first time you decide you make a home purchase. There is to penalty to this IRA withdrawal but there is taxes that you will of course have to pay. What exactly is a “new home?” According to the IRS it means that you have either never owned a home or been the sole owner of your main residence for the last two years. The best part of this penalty-free withdrawal is that you can use it to help a relative (child, grandchild, etc.). Another penalty-free IRA withdrawal applies when you take money to pay for an education (once again either for yourself or for a family member.)

The IRA also has much lower costs associated with it than a 4o1(k) retirement plan. Due to the fact that the IRA has very few restrictions on investment vehicles you are able to investment in many low costs index funds. For those of you that are curious- index fund fees can be as low as less than 1% which is nothing compare to the exorbitant fees that may come with some 401(k) investments. The 401(k) costs are not only expensive but also can very confusing for the average person. You have to take care of both management fees and the individual investments fees that come along with it.

I introduced the retirement section by comparing the Roth IRA to the 401 (k) retirement plan. Today I wanted to quickly follow up with you guys because of some news. The IRS has released the 2010 contribution limits for traditional and Roth IRA.

2010 IRA Contribution Limits:

IRA Contributions

You are eligible to make 2010 Roth IRA contributions from January 2nd, 2010 until April 15, 2011.

This information is hopefully extremely useful to those looking to beging their financial planning a bit early. I hope you guys check out the 2010 contributions limits for the Traditional and Roth IRA.

Today I will open up the new Retirement section with a simple comparison drawn between the Roth IRA and the 401(k).

The Roth IRA is the money you invest into your retirement after you have already paid your taxes. The 401(k) is the money you invest in your retirement prior to paying your taxes.

Passive Income Now will cover every aspect of passive income, which ultimately does cover retirement.

A 401(k) will reduce your taxes today, while the Roth IRA investment will reduce your taxes in the future.

Benefits of the 401(k) as your retirement investment

Less taxes if you decide to retire on your 401(k). Your total amount of money spent on taxes will definitely be low if you choose to retire off your 401(k) income. You won’t have to put up with any extra income that could potential increase your yearly tax rate.

Allows you to make your own career decisions. Many people simply wish to remain at their current position within their respective company until retirement. This is fine. Some of us would like to focus more energy on enjoying life and doing the things that we enjoy. With the 401(k) you will deffer your taxes until retirement which in your case with your career is likely the better choice.

Your employer may match your 401(k) contributions. Many individuals are fortunate to work in a company where their employer matches their 401(k) contributions dollar for dollar. Please do take advantage of this free money (it reall is free). Tax  benefits of the Roth IRA are great but nothing beats free money.

Benefits of the Roth IRA as your retirement investment

The Roth IRA has many benefits for entrepreneurs. Many entrepreneurs will not reach their highest income point until later on in life. If you need to have high amounts of money during retirement, it’ll be very helpful to receive some of that money tax-free, especially if the income tax rates are higher

The Roth IRA provides a tax shelter. If you have many sources of income (passive & active) then you are probably in a higher income tax bracket. As a result you could greatly benefit from placing a portion of your income into a non-taxable account.

The Roth IRA is ideal for the self-employed. If you are very entrepreneurial person then chances are that you do not even an employer, let alone an employer that will match your retirement contributions.

Now at the end of our discussion; Is there a compromise between the Roth IRA & 401 (k)? There of course is the Roth 401(k). An investment vehicle that deserves to be looked at in greater detail.

Now that we have compared the Roth IRA & 401(k) where do we go next? On PIN we will discuss both many more times in the future. As for the readers- do not let the paradox of choice or information overload prevent you from saving for your retirement. Start saving right now! Your opinion may change in a few years but that’s okay because you will already have the power of compound interest on your side. You can then at that point start investing into another retirement investment vehicle.