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Planning Tips
Home » Retirement » Top 10 Retirement Planning Tips » Planning Tips1. Make a Will: To avoid someone else making decisions about your assets, it is necessary to make a will. This important legal document reflects the decisions you make to ensure assets are distributed as you see fit due to incapacitation or death. It is also important to have a health-care directive naming someone who will make health care decisions in the event you cannot. A power of attorney should also be named. This person can assist you in making decisions related to money.
2. How much is enough? Save as much money as early as you can. Investments gain each year and build on prior year’s gains. There are several ways in which retirement may affect your expenses. In some ways retirement is cheaper and in some ways can be much more expensive. In all probability housing, life insurance, transportation, clothing and other expenses related to a job, will decrease upon retirement. On the other hand, medical expenses may increase. We live longer lives and medical technology has made this possible, but medical technology doesn’t come without a cost. Food, recreation and property insurance may increase. You must also figure in an inflation rate of 3% if it is 20 years until you retire. The average American spends 18 years in retirement, and less than half of Americans put aside money for those years!
3. Commit to Saving Money: After deciding the type of retirement, whether it is traveling, building a new home or adding a new hobby, it is crucial to figure out how much to save. How will those expenses be met? Determine your estimated Social Security benefits and income you will receive through annuities or pensions. If this isn’t enough, then budget to save more money
4. 401(k)’s: A 401(k) is a way to reduce your taxable income and increase retirement benefits. The payments to a 401(k) are deducted out of pay before taxes are withheld. If you are lucky, the place in which you work will match your contributions. Because the money is not taxed yearly, it compounds at a quicker rate. The federal limit on annual 401(k)’s has risen to $15,000. Even if you can’t afford to max out your 401(k), contribute enough to match your employer’s contribution. It is important to note that employees are limited to the investments the employer chooses for the company 401(k) plans. Money can be rolled into an IRA, another 401(k) or there is the option of cashing your existing 401(k) out if you change employers. Get sound advice so you rollover the money without penalties.
5. IRA’s: Even if you have the advantage of a 401(k) through your job, an IRA can be an excellent retirement boost. IRA’s were instigated by the Federal government to encourage people to save for retirement. There are two main types of IRA’s: traditional and Roth IRA’s. They both offer tax advantages but in different ways. With a traditional IRA, the money saved is tax-deferred until withdrawals are made at the time of retirement. If you have a Roth IRA you pay yearly taxes, but upon retirement your payments are tax free. There are limitations on both IRA’s as to how much you may contribute. The contribution amounts are related to your income and marital status. The choice between the two can be difficult. Generally, a better choice is a Roth if you expect to be in a higher tax bracket upon retirement. The Roth also offers more flexibility because there are not requirements force mandatory withdrawals when at the age of 70½. The Roth is a great choice if you wish to leave money to your heirs.
6. Stocks: Investing in stocks is good idea if one can invest on a long-term basis. Stocks generally have high returns over long periods of time. Successful investments ensure retirement savings grow faster than the rate of inflation thus increasing the retirement nest egg. It is important to resist investing too heavily into bonds. Over 10 to 15 years, inflation can rob the purchasing power of the interest gained through bonds. Diversifying your portfolio between stocks and bonds can have a greater impact on long-term savings and returns.
7. Plan Your Budget NOW: By making a budget now, you can plan for your monthly retirement savings before it is spent on everyday living expenses. Begin by listing expenses from the past few months, the review those expenses and work on areas of waste (needs instead of wants) and plan for savings. List constant expenses such as the house payment and car payment. Then set reasonable amounts on items that fluctuate. After setting the budget, the hard part is living within those means. List priority goals for savings such as saving for a new car, buying a home, paying off bills and last but certainly not least is saving for retirement.
8. Working part-time in retirement is another way to stretch your nest egg. If you are bringing home money each month, it reduces the amount you must withdraw from your retirement savings.
9. Set Realistic Goals: Base retirement on needs and be honest about how much money you want to live on when you retire. The most important ally you have when thinking about retirement goals is time. The money that is saved now will compound and grow. Goals need to be reexamined every five years so they can be reprioritized as needed.
10. Retirement Planning is not a Spectator Sport:
It is always necessary to remain actively involved in the management of your planned retirement. It is imperative to seek professional advice that includes sound financial planning.
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