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Put Your Year–End Bonus To Work
If you receive an annual bonus from your
employer, don't treat it as mad money, good
for one wild splurge. Instead, put it to
work strengthening your family's financial
security.
Your bonus is not fun money. It's part of
your income. That's why, as a financially
savvy person, you should view your annual
bonus as an opportunity to enhance your
financial position, build assets, and work
toward achieving long-term objectives.
What to do: Use your regular income to
buy that new car, pay down debts or take a
vacation. Use your bonus to make your life
and your family's life more secure. Here are
just three suggestions to consider:
Shore up your life insurance
protection. We don’t just say this because
we’re New York Life Insurance Company.
We’re New York Life because we believe in
the value and importance of life insurance.
Life insurance protects your family.
For example, if you have minor children,
you know they’re expensive. The average
cost today of raising one child from birth to
age 18 in a middle–income family tops
$184,000, according to the U.S.
Department of Agriculture. That’s more
than $9,000 per year. For upper–income
families, the average is nearly $270,000.1
Use all or a portion of your year–end bonus
to update your life insurance to protect your
children and, if you are married, your
spouse. How much do you need? The only
real answer is enough! Each family's needs
are different. Your New York Life agent can
help you sort through your needs and
determine the amount that is right for you.
So, consider using part of your bonus to
strengthen your life insurance program and
your family's financial security.
If you have minor children, consider
saving part of your bonus for their
education. This is one of the best gifts you
can give them — a debt–free college degree.
The problem is that college is expensive, and
the cost keeps rising every year. Tuition costs
at public institutions averaged $5,132 a year
in 2004–2005, or more than $20,000 for
four years, reports the College Board, an
independent organization that tracks college
costs. At the pricier private schools, tuition
averaged $20,082 per year. Add another
$10,000 or so for room, board and living
expenses, and the total bill can get pretty
steep.2
This does not factor in the price of graduate
school, that a four–year degree often takes up
to five years to complete, or that you may be
sending more than one child to college.
Fortunately, in addition to scholarships, you
have several options to help accumulate
college funds in advance. Among the tax advantaged
options is the Coverdell
Education Savings Account, formerly
known as Education IRAs, which lets you
contribute up to $2,000, non–deductible, a
year, with earnings received tax-free if used
to cover qualified expenses.3
Put a lump sum to work for your
retirement. It’s the same principle as saving
for college, but with potentially more time
to build cash. The goal is to have a
comfortable retirement nest egg waiting for
you when you retire. Say your bonus is
$2,000. The following chart projects how the single contribution will grow over time based on various average rates of return.
| After Year |
5% |
6% |
7% |
8% |
| 20 |
$5,306 |
$6,414 |
$7,740 |
$9,322 |
| 25 |
$6,772 |
$8,584 |
$10,584 |
$13,696 |
| 30 |
$8,644 |
$11,486 |
$15,224 |
$20,126 |
| 35 |
$11,032 |
$15,372 |
$21,354 |
$29,570 |
Figures quoted are for illustrative purposes only and
are not necessarily indicative of past or future results
of any specific investment. They do not include
consideration of the time value of money, inflation,
Fluctuation in principal, or in many instances, taxes.
Do this every year with your bonus, and you
will have gone a long way toward helping
achieve your long-term financial security.
The bottom line: You have a choice when
you receive your year-end bonus. You can
spend it; or you can put it to work for you
and your family. If you need help working
out the details of how to allocate your bonus
for maximum accumulation, contact your
New York Life agent and/or NYLIFE
Securities Registered Representative. He or
she will meet with you to help map out a
strategy that works for you.
1 "Expenditures on Children by Families, 2004,"
USDA, April 2005.
2 "2004-2005 College Costs," 2005, The College Board
(www.collegeboard.com)
3 "Coverdell Education Savings Accounts Can Make
Education Costs Less Taxing," Internal Revenue Service,
March 2005.
00317478
Consult an Agent:
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convenience.
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