Money Management & Retirement Planning Advice by Barry Unterbrink, Chartered Retirement Planning Counselor

Wednesday, March 28, 2007

Using IRAs to Retire

IRA and retirement account contribution deadlines: April 15th

The Individual Retirement Account, or IRA is probably the most popular investment account for individual investors. Started in 1974, the IRA allowed workers without a traditional company retirement plan, a much needed way to save tax-deferred for their retirement.

The key to building substantial wealth in an IRA account is to contribute to it every year, and let your money grow with the stock market. Here's a table to show you the almost magical effect of compound growth with your IRA.

10 years @ 10% growth, contributing $3,000 per year: ending balance, $52,593
15 years @ 10% growth, contributing $3,000 per year: ending balance, $104,850
20 years @ 10% growth, contributing $3,000 per year: ending balance, $189,007
25 years @ 10% growth, contributing $3,000 per year: ending balance, $324,545

As you see, contributing $3,000 per year, or $58 per week, with the added growth of those deposits, can really add up. Skipping contributions will hinder your performance. Taking money out before age 59 1/2 will also incur tax penalties, and you will pay tax now on the withdrawal. Initially set at $1,500 per year as a maximum contribution, it is $4,000 per person today, and $5,000 if you are over age 50. That can increase those balances above substantially.

You may question my using the 10% figure. That is the average gain in the stock market over 70+ years as measured by the S&P 500 Index, which includes dividends. Take a look at history.
1940's - stock market gained 11% per year
1950's - stock market gained 17% per year
1960's - stock market gained 8% per year
1970's - stock market gained 8% per year
1980's- stock market gained 15% per year
1990's- stock market gained 15% per year

When is the best time to contribute to your IRA account? Anytime. With only a few weeks left to contribute for 2007, you had better get moving. If you are expecting an income tax refund, it would probably pay to even borrow the IRA deposit money now, make your deposit and then pay back the loan with your tax refund or recently approved tax rebate.

Give me a call should you require further advice on this topic, or to open your IRA account.

~Barry Unterbrink
(954) 719-1151

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