If Social Security Falls Short

Have a Plan

Are you worried about the current state of the Social Security system and how its future may affect your
retirement income? It’s important to take a long, hard look at your current savings strategy to ensure
you’ll be able to compensate for this, or any other, retirement income shortfall. Here are some important
savings strategies that can help you reach your retirement income goals.

Participate in your employer’s retirement plan.

Regular contributions to an employer-sponsored
retirement plan, such as a 401(k), can be an essential part of solidifying your retirement savings
program. Contributions to such plans offer three key benefits: they are made with pre-tax dollars; they
reduce your current taxable income; and they enjoy tax-deferred accumulation.

Start an IRA

An IRA (Individual Retirement Account) is a retirement savings vehicle that gives
individual taxpayers the opportunity to accumulate tax-deferred earnings on contributions. You can
contribute up to $5,500 (or $6,500 if you are age 50 or older) per year to an IRA, and contributions are
tax deductible under certain circumstances. It is the combination of these two key benefits--tax-
deferred accumulation and deductibility of contributions--that makes an IRA an important retirement
savings vehicle for many individuals. Earnings on all contributions enjoy tax-deferred accumulation and
incur federal (and, in some cases, state) income taxes only upon withdrawal. Deductible contributions
also incur income taxes upon withdrawal. Bear in mind, any withdrawal from an IRA prior to age 59½
may result in a 10 percent federal penalty tax (in addition to federal and state income taxes). In
addition, withdrawals must commence when you reach age 70½, at which time you must also stop
making contributions.

Consider a Roth IRA

This savings mechanism is unique in that contributions not only accumulate on
a tax-deferred basis, but may also be withdrawn free of federal (and sometimes state) income taxes
under certain conditions. However, unlike a traditional IRA, you may not deduct any contributions to a
Roth IRA. You can contribute up to $5,500 (or $6,500 if you are age 50 or older) per year to a Roth IRA
if your income meets certain eligibility requirements. Withdrawals made after age 59½ and after the
Roth has existed for more than five years can be made federal income tax free (and sometimes state
income tax free), and penalty free. Also, penalty-free withdrawals prior to age 59½ are allowed for
qualified first-time home purchases up to a $10,000 lifetime limit. Finally, you do not have to begin
taking withdrawals at age 70½ from a Roth IRA, and you can continue making contributions after age
70½ if you are still working.

Annuities can go a long way.

Many people who have become accustomed to the benefits of IRAs
also look favorably upon annuities. Annuities come in a variety of options, none of which are subject to
the eligibility requirements facing both traditional IRAs and Roth IRAs. Although you cannot take a tax
deduction for the money (premiums) put into an annuity, your premiums do enjoy tax-deferred
accumulation until withdrawal. Like IRAs, withdrawals from an annuity prior to age 59½ may incur a 10
percent penalty tax. Also, insurers may have their own set penalties for withdrawals taken within the
first several years of an annuity’s existence. With annuities, you do not have to begin taking
withdrawals when you reach age 70½. Also, there is no annual limit on how much premium dollars you
can place into an annuity.

Meet with a qualified professional

Meet with a qualified professional. The key to building and maintaining any successful savings
strategy is to seek the advice of a qualified financial professional. Regular reviews will help decrease
your insecurity about Social Security and help you make the best choices for your particular situation.