With the average life expectancy increasing every year it has become more difficult for a retiree to live solely off social security. A wise retiree would never depend only on social security. Instead, they will supplement their lifestyle with other sources of income, or have setup an Individual Retirement Account in the past.

An Individual Retirement Account (IRA) is exactly what it states. It is an account that is opened through a financial institution such as a bank, or even your online stock broker.

Why do I want to setup an IRA?
The main benefit of opening an Individual Retirement Account is the fact that all the capital gains or dividends you receive are all TAX-FREE. That’s right, all the capital gains are exempt from taxes, until you withdraw the money. Just think of all the money that can be made from compounding throughout the 20-40 years. Even at a conservative growth rate of 5%, a small yearly contribution can snowball into a handsome sum of money with time. It will at least be enough to pay most living expenses as a retiree and then some. Since it is a retirement account, you are not able to withdraw the money until you are 60 without facing penalties. This is definitely a long-term investment account and should be separate from your short-term investments or speculating opportunities.

What can I do with my IRA?
With an IRA you can trade many securities such as stocks, bonds, and ETF’s without having to pay for capital gains and dividends. Or if you want to take a more conservative approach, you can invest your money into the money market funds and earn a rate of 3-5%. The maximum amount you are able to deposit in your IRA every year is $4,000. That is $333.33 a month, which can rival a car payment, but the long-term benefits will outweigh that nice car that you want right now. It is true that those who live below their means and save are the ones that truly get ahead. Stop putting it off and open that IRA today so you can be another wise investor on their way to financial freedom.

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