An Overview of IRA and KEOGH Accounts: WESIP At Merrill Lynch

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Cotton, R. Jason
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Economic events in the past few years such as inflation, problems with the social security ·system, and a high rate of business failures have demonstrated that planning for retirement as soon as possible is the best way to ensure a healthy retirement. Today, Americans are living ten to twenty years beyond their retirement age and with medical technology, many beyond the age of ninety (See Appendix I). This is equivalent to about one third of one's life spent in retirement. (2, p. 1) Employees may be entitled to retirement income from a retirement plan established by their employer, and will probably receive some income from Social Security. This income, although important for providing a base during the retirement years, in most cases, is insufficient and leaves much to be desired. According to the Social Security Administration, "Among retirees over sixty-five who earn more than $20,000, Social Security and pension benefits together account for only thirty-five percent of income. (3, p. 48)" (See Appendix II). Though inflation has been low over the past few years, over time, its effects can make the income received from these programs unable to cover one's basic living expenses. Most retirement plans, as a common rule of thumb, state that retirement income should be seventy-five to eighty percent of current income, adjusted for inflation. (11, p. 91) Most individuals want to enjoy retirement to the fullest and therefore, should begin planning early to provide for medical costs or financial emergencies (See Appendix III). IRA's and Keogh plans can help form this important part of retirement planning in addition to any retirement benefits from employers and Social Security. The IRA and Keogh are two unique programs created by Congress that permit eligible individuals to accumulate funds for retirement, instead of completely relying on employer- or government- sponsored retirement programs. A positive factor in investing in IRA's and Keogh's is that not only may the contributions to these programs be tax deductible, but the tax on one's annual earnings is deferred until one begins to receive distributions from the programs. Because of compound interest and this tax-deferred nature, over a period of time, the funds have a chance to significantly accumulate.
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