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Financial Tip

Oliver Wendell Holmes, former Justice of the United States Supreme Court, once said, "Taxes are what we pay for a civilized society." Although people work hard to meet their needs and the needs of their families, there are some things they cannot purchase themselves. For example, the taxes paid to state and local jurisdictions help pay for police and fire protection. These taxes also pay for the operation of the local governments, and for local recreation areas such as parks and other public facilities.

On the national level, federal income taxes help pay for defense for the country. They also pay for capital facilities such as highways and other transportation services, and to help those who are poor or ill. These are all services that individual citizens cannot purchase the way they can buy food and clothing and the other necessities of life. When people live together in a society, all of its citizens bear the cost of providing such services. Taxes are the means by which the society raises the money to cover these public costs.

The United States Department of the Treasury has a number of fact sheets that can help people better understand the various taxes imposed in the United States. These include: Economics of Taxation explains how taxes support government services and benefit the country's citizens. Writing and Enacting Tax Legislation explains the process for developing and passing legislation into law.

In addition, Lesson 1.5 of the Yes, You Can Curriculum includes classroom examples of how taxes are collected and used by the various jurisdictions.

Source: Adapted from United States Department of the Treasury.

Don't Let Retirement Myths Negatively Impact Your Golden Years

Whether you are nearing the point in your career when retirement is just around the corner or you think that time of your life is a world away, knowing the steps to take to help ensure your retirement years will be financially secure can be challenging. During the past few years, a weakened economy made saving for retirement a challenge. None the less, it is important not to let time get away from you when it comes to preparing for this phase of your life.

Fortunately, there is a great deal of retirement planning information available from many different sources. Just make sure you get reliable advice and know the facts before you put your retirement plan in place. Presented here are five common myths that can negatively impact your financial situation when you reach retirement age:

Social Security benefits are all I need for retirement.
Based on the retirement lifestyle you plan to maintain, relying only on your Social Security benefits may limit your ability to live comfortably. What's more, there is much speculation that Social Security funds will run out sometime after 2033. So depending only on Social Security checks may cause you to be financially vulnerable at life's end.

I'm all set with my employer-provided retirement plan.
If you participated in an employer sponsored 401(k) for many years, you may have a healthy retirement account in place. But make sure you keep track of all the fees associated with the plan. If these costs become a drain on your savings potential, inquire about other options that might be available. If your employer does not offer a retirement plan, check out other investment instruments - such as a traditional or Roth IRA - that give you the ability to save on your own.

I don't earn enough to save for retirement.
If your employer offers a matching 401(k) program, you can start small and increase your contribution on a regular basis until you can contribute the maximum amount. The employer match can help boost your overall savings more than you think. If your employer doesn't offer this benefit, take a look at all of the "extra" spending you do each month on things such as lattes, restaurant meals and entertainment. Consider limiting some of these purchases in order to put money away each pay period to fund a personal IRA or other type of investment.

I can wait until after I pay for my children's education to start saving for retirement.
While providing an education for children is a common financial goal, keep in mind that if you don't have enough tucked away to support yourself in later years, your children may end up paying the price by having to finance your care. You can help your children prepare for their education expenses by encouraging them to research potential scholarships, grants and student loans.

I will spend less when I am retired.
If you have paid off all of your debt, you may think that your expenses will be less in retirement. But remember, you may not continue to receive the same tax breaks as you did when you were employed or paying a mortgage. Also, with additional free time, you may be tempted to spend more on traveling, hobbies or other activities that you don't have time for now. Keep in mind how inflation and increasing healthcare costs can have an impact your retirement budget.

Teachable Moments

Planning for your retirement is just as important as any other financial decisions you make for your family.

Think about how much better off your children will be if they understand what it takes to build wealth for the future even before they leave home. By seeing you actively involved in setting and meeting your financial goals, your children can learn the connection between work and money, and have a better understanding of the concepts of budgeting and saving over time.