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Your income sources fall into these four major categories:
- Social Security
- pension plan income
- retirement (tax-deferred) savings income
- income from personal savings and investments
Social Security payments and income from a pension fund can provide your core
income and are the most predictable sources of your retirement income. Income
from IRAs and personal savings is what you can control now so that the inevitable
gap between your core income and what you actually need can be filled. Planning
and saving will be directed toward filling this financial retirement gap.
Before you look into the specific vehicles associated with each source of retirement
income, zero in on the fact that it's important that you start saving early!
Look at the following two retirement account examples and compare the results
of the account started early with the account started later:
Case A: Begin contributing $100 per month when you're 25.
Continue until you are 35 and then stop. After 10 years of contributing to your
retirement account:
Total invested is $12,000-total cash balance at age 65 is $201,399.
Case B: Begin contributing $100 per month at age 35. Continue
until you're 65. After 30 years of contributing to your retirement plan.
Total invested is $36,000-total cash balance at age 65 is $150,030.
In Case B, you contributed for 30 years and still made less
that the person who contributed for only 10 years, but started
much earlier. The earlier you start, the more you will have
when you need it.
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