[Author’s Name]
[Institution’s Name]
Essay on How your Plan to Save for Your own Retirement
The prime attraction of a retirement plan contribution for me will be to reduce my current tax bill rather than to build a nest egg. Current tax savings comes in the form of a tax deduction for the contribution I will make to my retirement plan. For example, if I am in the 35% federal tax bracket and I am permitted to contribute $40,000 to a retirement plan, I will save $14,000 in taxes for the year to make the contribution. Of course, I will have to pay tax on the money eventually when I will take it out but having a retirement plan sure saves me a lot of money now and when I eventually take the money out, chances are good that I will be in a lower tax bracket, meaning I would owe something less than $14,000 of tax on the $40,000 by the time I withdraw it from my retirement plan.
Financial planners estimate that I will need an average of 70-80 percent of my highest working income to live comfortably during retirement. If I am making $50,000, that would be $35,000 to $40,000 per year. This income estimate will be based upon my current situation.Making a retirement plan contribution allows you to delay or defer the payment of income tax on the amount of the contribution.
And when you have a choice, it is usually best to defer income tax for as long as possible. During the deferral period, you have the use of money that would otherwise have gone to taxes. If you invest that money, it will help generate more tax-deferred income. As the tables below show, even a one-year delay can be beneficial. So imagine what happens if you put money into a retirement plan while you are working and let it grow for many years until you retire......
