Voices in Finance » retirement planning

Are You Ready For Retirement?

Mike — Mon, 20 Jun 2011 15:14:34 +0000

According to the United States Department of Labor, fewer than half of all Americans are adequately planning for the 20 years that the average American spends in retirement.

It is estimated that a person on an average or higher income will need at least 70% of their current income after retirement to maintain their current standard of living. For low income earners, the estimate is 90%.

Some people hand over their retirement planning to expert financial advisers. Basic retirement security requires planning, commitment and discipline but it is not complex.

There are many resources available both commercial such as moneysupermarket and governmental to help you plan your retirement strategy.

Some experts may take risks that are not acceptable to you, resulting in losses that affect the outcome of your retirement plan. It is wise to only risk a portion of your money and to spread your investments to minimise risk.

To begin with, it is important to assess your retirement needs. Be realistic and set achievable goals based on your current standard of living.

Consider how inflation will affect what you can afford in the future. This will require expert analysis by a professional for accuracy, but a good rule of thumb is that prices double every 10 years.

Find out what type of retirement plan your employer offers. If there is none, then request that be one be created. If a plan exists, then find out what the benefits are and what happens if you leave the company.

If your employer offers a 401(k) retirement plan, then sign up and contribute as much as you can. There are tax benefits to doing this and your employer may contribute more as you do.

It is always important that a person diversifies their retirement portfolio. On top of your employer’s plan, there is also the Individual Retirement Account. Here, you can save $5000 tax free a year or more if you are over 50.

Additional options are purchasing retirement annuities, investing in stocks and bonds and buying property. All of these require expert financial advice and are higher risk than government sponsored plans.

The younger you are when you begin saving, the greater your options and the better the returns. As a young saver, you can take on more risk as a part of the plan.

Typically, a young investor, say 30 years old, has 30% of capital in secure savings and 70% in a variety of higher risk ventures. As a person gets older, so the risk portion should decrease and the secure portion increase.

It is vital that retirement savings are left untouched. There are usually penalties involved in early withdrawals and there may also be a loss of tax benefits.

There is also the Social Security benefit to consider. This typically pays out at 40% of your final salary but check with your annual Social Security Statement to find out exactly what you will be entitled to.

Retirement planning for peace of mind and well being is essential in this day and age. The sooner you start the better but always better late than never.

401k and Retirement Facts

J. Hamilton Fraser — Mon, 05 Apr 2010 14:41:39 +0000

A recent study revealed that over 40% of Americans have less than $10,000 in savings. That figure covers any kind of savings — retirement, emergency fund, kid’s college fund. While the economic downturn has helped begin a sea change, helped begin to turn American from spenders into savers, there is still work to be done.

The same study found that a quarter of Americans have stopped any retirement savings in response to the uncertain economy. When surveyed, only about half the workers said they have done any sort of retirement planning. Calculating your retirement needs is a vital part of financial planning. What all this tells us is that we don’t know how to deal with the financial crisis and therefore we will ignore it. If we stay mired in the day to day of working, however, and don’t focus on a goal or end result, Americans will find themselves having to work well into their golden years.

In 1978 Congress enacted the changes to the tax code that allowed the first 401k accounts to be created. The creation of the 401k system was in response to the slow decay of pension plans. Between the cultural changes of workers no longer staying with a company for life and the loss of any sort of guarantee of life-long employment (a real chicken and egg scenario), the 401k system was a lifeline for the American worker. Over the years the code has been amended to include important tools like the 401k rollover, the Roth IRA and the individual 401k account for self-employed people.

Over the last twenty years, the news has regularly predicted the demise of Social Security. Instead of spurring people to save more, it has had the opposite affect. People feel adrift. The only cure for this aimlessness is hard-nosed planning and goal setting. No one, certainly not Uncle Sam, is coming to rescue us, so we have to save ourselves.

Start 401k investing today. Start right now. If you don’t have a 401k account through your company, ask how to set one up. Put 10% of your paycheck into the account. In two months you will forget what it was like to have that extra $100 a month. Take a hard, mature look at your spending. Where does your money go? Get a written budget and stick to it. Again, in two months you will be settling into the routine of spending less than you make. Your best wealth building tool, the thing that is going to make your retirement years truly golden, is your paycheck. Don’t squander it.

Retirement Planning in 4 Steps

J. Hamilton Fraser — Tue, 16 Feb 2010 13:59:28 +0000

As the Baby Boomer generation begins to face retirement, it should make the rest of us sit up and take notice. What are they doing right and what are they doing wrong? Well, if news reports and surveys are any indication, many of them are starting too late. Many are in debt and facing years more of work to achieve financial stability. Here are some tips for how to plan for retirement.

1. Face the stats. The odds are you will live to be in your 80s, so you should plan on funding that lifespan. People tend to underestimate how long they will live and therefore, they aren’t calculating retirement correctly. When you are sitting down to try to come up with your retirement goal, consider that you may have 25 years of living off of your nest egg entirely. Let’s say you retire at 65, work part time until you are 75 and then, you may live to be 100. More and more people are living that long. Can your nest egg last that long? And do you want to leave any money behind? Add that to your figures. too.

2. Face the stats, part 2. With advances in medicine, lifespans are increasing and one of the main reasons is preventative medicine and prescription drugs. Those things cost money. Have you added that to your retirement calculations? The average senior citizen spends 15-20% of their monthly income on prescription medicines. Are you prepared for that outlay? How much are your health insurance premiums and do you have long-term care insurance? Once you turn 60 you should buy it. There is one more expense.

3. Stabilize you monthly expenses now. The good money habits you cultivate now will help you in your golden years. One of the biggest issues facing retiring Baby Boomers is their debt load. Many of them have $20-50k in credit card debt. Many of them do not own their home. Those two factors combined mean that those folks will be working an extra 10-15 years just to get out from under the debt and begin to save some money. If you make the effort and get debt free now, you are ahead of the game. Getting to a place where you can forecast your monthly bills, and have a cushion of a few month’s expenses in place will allow you to weather the ups and downs of modern living.

4. Use the tools available to you. 401k, IRA and Roth IRAs are available to you. Use them! While most people do participate in their companies’ 401k plan, most woefully underfund it. You can put 10% of your wages (or $16,500 whichever is lower) into the account. If you are 50+, you can add an additional $5,500 on top. They call this the “catch up” provision. If you leave your company (as the average worker does 2.5 times int heir working life) remember to take advantage of the 401k rules that allow a rollover. A 401k rollover-IRA or Roth is a great idea. If nothing else, roll it to your new 401k plan. Just keep every dollar working for you. That is the key. If you can afford to fund an IRA and a 401k that is ideal.

By following these tips you will be well on your way to creating a rock solid foundation for your retirement. Planning for the future now is smart and if you are in your twenties or early thirties, time is on your side, my friend. Live well; live smart.