-
-
Did you know if you plan for retirement at a young age, you can be a millionaire by the time you are 65? Most of us won't start soon enough to reach that goal, but that doesn't mean we have to look forward to surviving on Social Security. It's never too late to plan for the future. How to Plan for Retirement will teach you how to start saving now and make up for lost time.
-
-
Retirement Planning Tips
- Get advice from your bank, your employer and a financial planner.
- Calculate basic retirement income needs at 60-80 percent of your gross.
- Understand Social Security benefits and pension plans.
- Balance saving and investments to reach long term goals.
- Anticipate post-retirement taxes.
-
Featured
This video offers an overview on retirement planning, touching on some of the main points to consider. This includes starting to plan as early as possible, always with the end result in mind. As yourself what you want to achieve with your retirement plan. Also, where do you want to live? You should also be willing to make changes to your plan along the way. This means if you start making more money, you might want to tweak you overall plan, or even advance your retirement plans. Also mentioned is the importance of having an emergency fund on hand in case something unexpected happens.
-
Introduction
- Retirement planning can begin at any age. The earlier you begin, the less difficult it will be to reach your financial goals. Many people not only want to retire without financial worries about daily expenses, they also want to have sufficient funds for travel they may have postponed while building a career and minding a family. Some hope to move to a warmer climate or a smaller home that requires less maintenance. Adequate funding for your retirement goal is the foundation of your retirement plan. Devising a strategy for reaching those goals is a long-term process.
Step 1: Set Retirement Goals
- Retirement goals differ from person to person. Depending on your employer, your career or your needs, you may be able to retire as early as age 62 or you may need to wait a few more years. The retirement funds that you will be able to access will usually increase as you age. This is true of Social Security and many pension plans. Individual Retirement Accounts and 401K plans also offer greater benefits after age 65.
- Anticipate that you will need 60 percent to 90 percent of your current gross income to maintain your current lifestyle for 15-20 years if you plan to retire at 65. CCH: 2007 Life Expectancy Tables Workers who earn less than the national median income should aim for the maximum percentage and higher income earners can use the recommended minimum. Social Security will only provide around 40 percent, so do the math!DOL: Top 10 Ways To Prepare For Retirement
- Calculate 80 percent of your current income to get a ball-park starting figure, recommends the U.S. Department of Labor. Use up to 90 percent to account for inflation.DOL: Taking The Mystery Out Of Retirement Planning
- The result is the annual amount that you will need to have available to fund your retirement.
- Deduct 40 percent of this amount if you expect to receive Social Security payments.DOL: Taking The Mystery Out Of Retirement Planning
- Deduct any employer provided pension payments.DOL: What You Should Know About Your Retirement Plan
- The remainder is your annual outlay from your personal retirement funds.
- Multiply your annual contribution by 20 (years) to have a safety margin.DOL: Taking The Mystery Out Of Retirement Planning
- Use 30 years if you have health issues, educational goals or plan to retire early.
- Calculate 80 percent of your current income to get a ball-park starting figure, recommends the U.S. Department of Labor. Use up to 90 percent to account for inflation.DOL: Taking The Mystery Out Of Retirement Planning
- Use the AARP calculator to figure out your monthly post retirement expenses. AARP: Financial Planning and Retirement
- Include health care costs, such as Medicare, a Medicare gap policy, long-term care, disability insurance and life insurance.
- Learn how taxes, wages and other income will affect your Social Security income, so you can prepare to retire earlier or work longer, according to your goals. Social Security: Social Security Retirement Planner
Step 2: Review Assets
- Figure out what assets you currently own that will be available to you after retirement. These assets may include: your current home, regular savings, vacation homes, vehicles and current investments. Of course, you should include Social Security or company pension plans if these apply.
- Visit My Money to calculate your Social Security payments by age and in case of disability. My Money: Retirement Planning
- If you are ten years or less away from your target date, download "Taking the Mystery Out Of Retirement Planning," a free retirement planning guide with worksheets for planning how to reach your goals. DOL: Taking The Mystery Out Of Retirement Planning
- List all personal assets (liquid and non-liquid) by maturity date.
- Consider using your home's equity for additional income. Estimate potential income from reverse mortgage payments.
- List all sources of income, including possible income from post retirement jobs or a small business.
Step 3: Calculate Risk Tolerance
- According to Investopedia, risk tolerance is the amount of loss you are able to endure in the short term in exchange for a higher potential return in the long run. Investopedia: Risk Tolerance This means the older you are, the lower your risk tolerance. For instance, your risk tolerance should be greater if you begin your career and your retirement plan at age 25. If your retirement date is within ten years, you will have much less time for corrections or recovery from poor investments. However, you will need to balance risk and potential in order to achieve any income growth.
- Learn more about various investment vehicles commonly used for retirement plans. Investopedia: Retirement Plans
- Create a trial retirement investment portfolio with the lowest possibility of risk, such as Treasury Bonds and IRAs. Mahalo: How to Invest
- Calculate your returns by your planned retirement age. Choose to Save: Calculators
- Research the risks associated with commonly used retirement investments. Investopedia: Learn the Basics
- Experiment with your portfolio on paper.
- Replace low yield traditional savings with some higher risk investments. Stocks have an average compounded return of more than 11 percent, with a much higher risk than other investments. American Institute of Certified Public Accountants: Retirement Planner
- Balance your trial investment portfolio to reflect an acceptable level of risk for you.
Step 4: Develop Savings Strategy
- Few people are able to retire on their pension plans or Social Security alone. Strategic saving and investing make the difference between a financially secure retirement and collecting cans for income. Most people know they are not saving enough, but many simply do not know how to get started. The rule of thumb that all experts agree on: pay yourself first. Consumer Fed: Six Steps to Six-Figure Savings
- Find money for savings and investment in your budget. Aim for at least 10 percent of your current income. Increase the amount as you become comfortable with the loss of spending capital. Consumer Fed: 66 Ways to Save Money
- Look for ways to save on everyday expenses and large purchases, including insurance, home mortgages, and entertainment. Consumer Fed: 66 Ways to Save Money
- Use this found money to kick start your retirement plan.
- Build wealth, not debt. USA Today: Retirees Up Against Debt (March 2, 2007)
Step 5: Select Investments
- The result of a "one size fits all" investment plan may not get you to your goal on time. Customize your investment portfolio to reflect your starting age, your risk tolerance and the amount of money you really need.
- Calculate the rate of return required to realize your goal. My Money: Retirement Planning
- Many factors can impact your retirement benefits and income. Seek competent advice about the effects of:
- Get retirement investment information your from your banker or a financial advisor.
- Investigate brokerages before selecting one to handle your investments. SEC: Check Out Brokers and Investment Advisers
- Learn the advantages and disadvantages of self-sponsored and employer sponsored contribution plans. Motley Fool: Retirement Plan Primer
- Arm yourself with facts. Review the historical rates of return for common investments.DOL: Taking The Mystery Out Of Retirement Planning
- Bonds
- Stay safe with bonds if you don't like risk.
- Expect a return rate slightly higher than traditional savings accounts. However, inflation may reduce your yield even more. Motley Fool: Take Stock
- IRAs
- Consider IRAs for the tax advantages. Currently, an individual can put $4,000.00 annually into an IRA.DOL: Taking The Mystery Out Of Retirement Planning
- Traditional and Roth IRAs will yield substantial returns over the long term. CNN Moneymag: The IRA Advantage
- Catch up provisions allow people age 50 and older to make additional tax-deferred contributions.DOL: Taking The Mystery Out Of Retirement Planning
- Stocks
- Buy stocks for maximum growth.
- If you are 20 or more years away from retirement, invest up to 70 percent. Reduce your allocation to 60 percent or less by age 60. By age 65, aim for no more than 20 percent. FDIC: Retirement Strategies for All Ages: A "To-Do" List
- Minimize potential losses with Blue Chip and S&P 500 stocks. Motley Fool: Taking The Mystery Out Of Retirement Planning
- Diversify your portfolio.DOL: Taking The Mystery Out Of Retirement Planning
- Rebalance your portfolio allocations as you age. CNN Moneymag: 15-Minute Retirement Plan
- -Replace stocks with CDs, Bonds, Money Market and Mutual Funds. CNN Moneymag: 15-Minute Retirement Plan
- Be proactive about managing your investments. You will worry less and sleep more soundly by taking charge of your retirement plan.
Conclusion
Start saving for your retirement today and eliminate the worry about having enough money for the future. Prudent investments and regular reviews of your retirement planning strategy could result in enjoyable trips, educational pursuits and more quality time in your golden years. With a good plan, you might be able to retire even earlier than you think.About this page
-
Page Views423
This page currently has no vertical manager.
Featured Pages
