Proactive Retirement Planning

Posted on | October 25, 2008 | Leave a Comment

To create income when your job income stops is the main purpose of a retirement account. There are many philosophies as to how much of your job income stream you have to replace. Some financial experts state 60%; some 80% and others say 120%. How much you want to replace determines the size it needs to be.

You might think about your retirement account as a big bathtub, where monthly contributions are like a faucet that is filling it up, andÂ the interest earnedÂ is another faucet. When you retire, the contribution faucet turns off and the large drain starts to open. Such benefits as Social Security will certainly add a faucet but the drain is still much larger and if not managed carefully,Â the tub will empty too quickly.

So, what should you do, maybe adding another faucetÂ is a solution?

Most people who work are familiar with linear income.Â It means that you get paid one unit of pay for one unit of work. Residual income is money that keeps coming in after the work has been done once. For example the author who wrote a book over 30 years ago and still receives royalties on it. The other example is producing a movie, and youâ€™ll receive royalties on it. This residual type of income is attractive because it continues even thoughÂ you do little to no work to keep it coming in. Sometimes it is called mailbox money.

The concept of leveraging residual income is often the basis of many home-based businesses. You probably know the situation where you are introduced to the business through another person and then become part of their team. While building your business, you introduce it to other people who become part of your team and you can leverage the efforts of others to continue to receive income based on the efforts of others.

If this income covers your living expenses, then you could be called financially free and it means that you can ‘retire’ at any age. In addition there are many tax advantages that are available to small business owners.

If you do anyÂ online trading, you know you can’t control what happens on Wall Street, butÂ you can control your own actions, and a home-based business can be a perfect answer for you if you want to further secure yourÂ retirement.

Read the article about 401 retirement plan to learn moreÂ about this issue.