Retirement Planning: Strategies For Early Retirement Planning

In the past, and as recently as the 1970s, retirement planning was primarily the domain of insurance agents and brokers. Shortly before, in the decades preceding the psychedelic 70s, only five percent of the nation’s workforce planned for early retirement, an amazing figure considering the industry that currently thrives on such planning.

Today, many strategies exist for those wishing to retire, but the "Facts on Saving and Investing Campaign," launched jointly by the Alliance for Investor Education and the SEC (among others), reports that nearly 75% of the U.S. workforce have no clear idea of how much they should be saving for retirement. Various Web resources exist to aid in the process, and financial advisors or money managers can help as well. In the age of the Internet, there is truly no excuse for remaining in the dark about investing for early retirement.

The common guide to retirement planning, regardless of specific strategies, is to begin early, invest as heavily as possible, and diversify one’s retirement portfolio. Among some of the possible tools to meet specific goals are 401K plans and IRAs, most of which can be invested in the stock market, mutual funds, money market accounts, and annuities. Launched in the mid-1990s, Roth IRAs allow investors to place money in a tax-free account, meaning that no taxes are due on dividend and capital gains reinvestments and that no taxes are assessed when the money is withdrawn at retirement. These IRAs also offer more flexibility and fewer penalties for those who wish to withdraw money from the accounts. For instance, there are no penalties for withdrawing money early to purchase one’s first home, or to pay for education expenses.

Traditional IRAs, though they offer less flexibility and are taxed upon retirement withdrawals, offer their owners a tax write-off of up to $2000 for the year in which money was invested. Other retirement vehicles include 401K plans, which continue to offer more advanced options for educated investors. Companies offering 401K plans will typically match employee contributions up to a certain point, thus multiplying the power of the investment.

Finally, on the political front, many have discussed the possibility of partially privatizing the Social Security Administration fund, a retirement plan that all Americans contribute to when paying taxes and from which they will draw when reaching retirement age. Though this is an issue upon which politicians deliberate and around which they have trod softly, savvy investors can only hope for partial privatization, which would allow them to take a more active role in retirement investment decisions.