Individuals today have much greater responsibility in funding their retirement plans—a responsibility that can become overwhelming as the life expectancy continues to climb. The Society of Actuaries now uses the average age of life expectancy to be more than 90 years old when computing retirement needs. Social Security’s future and an uncertain tax environment make planning difficult, and members of the Pennsylvania Institute of Certified Public Accountants suggest that individuals have a variety of assets earmarked for retirement.
Many working individuals have a 401(k) retirement plan, also known as a defined contribution plan. This is an important first step in saving for retirement. Contributions to this plan are made tax-deferred, which means you do not pay income tax on the contributions until you make a withdrawal. In many instances, companies match a certain percentage of the contributions, so CPAs recommend that you at least contribute as much as the company match. If you don’t take the match, you miss out on a valuable savings tool. Important notes of caution: there are income limits on tax-deferred contributions, and for individuals planning to work into their 70s, withdrawals must begin no later than 70 1/2 years old.
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