Tuesday, November 18, 2008

Retirement Tips

I was fortunate enough to work with a retirement specialist this week at work and I have a few tips to share. These tips will work if you are a government employee with the Thrift Savings, or someone with a 401 (k) or 403 (b) program.
  • I, like most of you thought that the number of exemptions on your W-4 form (or payroll stub) had to correspond with the number of dependants that you claim at the end of the year. Not true! Exemptions are no more than units of measure, Uncle Sam doesn't care whether you claim 0 or 9 dependants as long as you settle up at the end of the year (whether you owe or you get a refund). Now TSP, 401 (k), and 403 (b) are all funded with PRE TAX dollars (you are taxed on these dollars when you withdraw them at retirement) so if you increse your exemptions (and lower your tax bill), increase your TSP, 401 (k) or 403 (b) by the corresponding amount, then you are basically funding your retirement with the money you would normally be paying in Federal and State taxes. The great thing about this is since the money for your Retirement Fund is taken out PRE TAX and you are lowering your overall taxable income, your take home pay is virtually the same. Go to www.dinkytown.net to use the online calculators and figure out how you can massage the numbers to work in your favor.
  • The second thing that I took away from this seminar was that you should stay until you have to retire. Staying until 65 instead of 60 for example, will almost double your retirement fund (depending on your rate of return).
  • The third thing and this is important...DON'T PANIC! Think of it this way, your retirement fund may be down, but you are buying more shares at a reduced rate. When (and not if because it will go up again) the market goes back up, you will own more shares and your fund will grow that much quicker.

DISCLAIMER: I am not a financial planner nor an accountant. Anything that you take from this blog entry is purely at your own risk. Consult your accountant or retirement specialist for specific details.

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