Investment basics Taxes and retirement

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With rock and-roll markets of recent years, many Americans like you are beginning to get nervous about how much they've put away - or really how much they haven't put away for retirement. But there is no point in looking back. You have a future to enjoy, and there are some basic things you can do to help jump-start your retirement planning.

Why start NOW?

It's not too late. But for every 10 years you wait to sock money away, you'll have to triple the money you save each month1. It's called the power of compounding. Here's how it works: Let's say you have $10,000 to invest. Assume you can add $2,500 more to that each year (that can be just over $100 a paycheck) and that your average
annual return will be 8%.

Start At:	By Age 65
Age 30
Age 40
Age 50
Age 60

There's still time to help jump-start your retirement planning. Of course, actual assets may vary and this does not represent a particular investment. Taxes aren't considered.

Don't forget inflation

Before you get too excited about being close to a millionaire when you retire - remember that inflation can eat away at your spending power. What sounds like a lot of money today, probably won't feel like a lot 40 years from now.

Inflation has been minimal over the last few years. But even a little bit of inflation can add up over a 20- or 30-year period. Take this example to heart. A postage stamp in 1970 cost 6 cents. Today, that same stamp costs 37 cents. 2

Click here for a calculator that tells you how much you need to put away each month to maintain your current lifestyle in retirement.

An easy rule of thumb is that you'll probably need to replace 70%-90% of your preretirement income. If you made $50,000 a year (before taxes) you might need $35,000-$45,000 a year in retirement income to enjoy the standard you had before. 1

You'll be pulling money from three sources during your retirement years: Social Security, personal investments and your employer plans. Since Social Security was never meant to fully fund your retirement and employer pension plans are becoming a thing of the past, you are going to be one of your greatest sources of retirement income.

Source: Social Security Administration, 1998

The Social Security Administration mails statements to workers aged 25 and older showing an estimate of retirement benefits. Call (800) 772-1213 to request a free Personal Earnings and Benefits Statement.

	New catch-up provision can help.
	Many Americans are playing catch up with their retirement planning. That's why the government passed tax laws to help out. Now Americans aged 50 and older can contribute additional money to their IRAs. From 2002-2005, the catch-up contribution is $500 a year. Also for those catching up at aged 50 or older: If you have a 401(k), you can add more to it each year beginning with an additional $1,000 in 2002. By to 2006, you can add $5,000 more each year than younger taxpayers. For more details, click here. Also, check with your tax adviser about your own personal situation.

	Retirement Vehicles
	What is a mutual fund? It's an instrument that invests in many types of stocks, bonds and cash - or a combination of all three. With a mutual fund, you can spread your risk among several investments, versus just one stock.