Earn Now, Enjoy Later. The idea--greatly simplified--is that the money you put into the retirement fund and the income it earns in the fund are not taxed until you take the money out of the fund to spend. Because of the time value of money, deferring taxation itself saves an enormous amount. In addition, after retirement, the person will probably be in a lower tax bracket. Should you decide to take out and use some of the money before a certain age (usually about 60) you'll have to pay a percentage penalty and also pay tax on the amount withdrawn. You have a good incentive to save instead of depending on the government.

The Retirement Income Mix. Your retirement income will come from three main sources. First is the income you get from a work-related pension plan and social security. This amount is predictable and usually fixed, though you have to pay attention to the financial health of the pension plan. The second source, which takes the most care and planning, is income from assets you have put aside during your working years, including assets put into IRA's and Keogh Plans. These assets can take many forms: stocks and bonds, mutual funds, real estate, even stamps and coins. The key simply is to save and invest your money now rather than spending everything. Investments for retirement should be fairly conservative in strategy. You should have enough invested so that you can live off the interest or earnings of your investments, without having to “invade the principal,” which would jeopardize your stream of income. The third money source will be income you actually earn after retiring from your main career or profession.

Planning. It is difficult to know exactly how much money you will need once you retire; the time may be far in the future. You'll have to consider where you want to live and what kind of lifestyle you want to lead. With all calculations, however, it's wise to add a substantial “hedge” against inflation.

Pitfalls. Misinformation, “get-rich-quick” plans, bogus sweepstakes and contests, swindles, scams, and fraudulent investment schemes are often targeted to the elderly. Be warned and be careful.

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