Planning For a Comfortable & Secure Retirement
When it comes to planning for retirement, there are a lot of unknowns. How much longer will you be able to work? Will you have any savings by the time you retire? How long do you need to make your money last once you’ve retired? For those who are retired, or about to retire, these questions have a greater urgency than ever before.
With the massive overhaul to rules and regulations by Congress and the White House, consumers – especially retirees – are feeling the impact the most. One of the most widespread of these changes is the new tax law which could greatly limit the number of deductions you can take, among other tax breaks that will be no longer eligible. These changes could have a major impact on your taxable income.
Right now, investing your money is also more challenging. We have been in a bull market for almost a decade, and the benchmark for the S&P stock index is at a record high – which means that in the future, returns are likely to be much lower. “There’s a growing risk of a market correction in the future,” says David Blanchett, director of retirement research at Morningstar, an investment research firm.
Whether you are currently working and still able to put money into your 401(k), or you’re already enjoying your retirement, here are some smart strategies that can help to ensure your financial security.
WORKING & SAVING
On average, men start claiming their retirement benefits a little later, collecting at 64.2 years old, versus a straight 64 for women, according to the SSA. For nearly half of people who do begin collecting, their retirement comes sooner than they expected, often because of company layoffs or health issues that arise. On the other hand, nearly a third of all retirees leave their job because they can afford to do so. If you’d like to find yourself in the latter category, there are things you can do to help.
Assessing Your Assets
Begin by adding up your retirement savings so you can see whether you’re on track to meet your retirement goals. A good benchmark is that at age 50, you should have saved the equivalent of 5.2 times your current household income in order to retire at age 65. In other words, if you’re 50 years old and earning $100,000 a year, then you need to have $520,000 in your portfolio to retire. Using an online retirement calculator can be a lifesaver when it comes to planning for your savings.
Boost Your Savings
If you’re still working, but you’re falling behind on your savings, now is the time to boost it up by making the most of tax-advantage retirement plans. If you’re able to afford to do it, then you should max out your 401(k). In 2018, you can stash away $18,500; if you’re 50 or older, you can put away $6000 more in catch-up contributions.
If you don’t have an employer-sponsored plan, then now is the time to open an individual retirement account. In an IRA, you can save $5500 per year, plus an additional $1000 catch-up contribution if you’re 50 or older. There are also pretax plans for a traditional IRA or a Roth IRA, so that you can put away after-tax dollars that will grow tax free. Any extra savings should go into a taxable account.
Plan (and Follow!) For Your Retirement Life
You are not just retiring from your job – you’re also retiring to something. Take the time to break down what you want your retirement life to look like, and make sure you follow that plan as best as possible. Talk with your spouse and make sure you’re on the same page about your retirement(s). If you want to move away and spend your years on the beach, take an extended vacation, and see how you take to that life. If you’re planning to volunteer or start your own, new career as a small business owner, take courses and join organizations that will help you gain experience before you jump in with both feet.
60 TO EARLY 70s: EASING INTO RETIREMENT
You’re in your 60s now, or maybe even a bit older, and are closing in on your retirement. Because your working time has run out or is about to run out, you have little to no time to recover from a financial setback, and you need to make sure that you’re covering all of your bases.
Test Your Finances and Review Your Options
How well would your current financial plan withstand a drastic downturn of the marketplace, or a workplace layoff? Running the numbers on different scenarios, and meeting with your trusted financial planner to discuss lower returns, early retirement, and insurance costs could make a huge difference in the face of a personal financial crisis. If your current plan couldn’t sustain you through a rough patch of at least a year or two, then it’s time to reevaluate.
Social Security, Portfolio Risks & Benefits
The longer you wait to retire, the more you can receive in Social Security benefits. This is one of the key factors in people working longer before retirement. Between the ages of 62 and 70, your payment increases by 6.5 to 8 percent each year that you delay filing. If you can work an extra year, or even two or more years, it can create a substantial difference in your retirement Social Security pay and benefits.
While not everyone can put off collecting their Social Security benefits, especially when a couple looking to retire together considers both of their benefit levels, doing so as long as possible can mean a huge financial burden is lifted once you retire.
As you do reach retirement, though, you need to pay close attention to your portfolio risk levels. Watch how much you’re adding to your accounts in cash or short-term bonds and stocks. If stocks return poor, and you’re combining that with withdrawals to fund expenses, you could deplete your portfolio in record time. While the returns may recover, you may not have enough left in savings to catch up.
Hold on to and build up cash in taxable accounts that can cover your regular expenses to avoid “panic selling.” A 2013 study found that having reserves in these accounts can raise the odds that your nest egg will be as much as 6 percentage points higher after 30 years in retirement versus not having any cash on hand.
70s and Beyond: How To Live and Enjoy Your Retirement
After you retire, your main concern will be to make sure that your money lasts, and that income can keep flowing – especially as you become older and, naturally, your health costs rise. Starting in the year where you will turn 70 ½ , the clock begins on the required minimum distributions that you need to take from your 401(k) and individual retirement accounts. If you miss an RMD, you’ll have to pay a 50% penalty and the taxes on money that should have been yours, so it’s important to pay attention to your RMDs.
Overall the most important thing you can do now is to plan, plan, plan. Sit down with a trusted advisor and discuss your options, where you are now, and where you would like to be when you retire. Working on your finances now, while you still have an income, will ensure that you have exactly the kind of retirement that you’ve always wanted.