The path to your dream retirement begins with these five
steps. How many have you already taken?
Stacy Johnson • August 5,
2019
Note: This post was contributed by Pam Kruger,
CEO of Wealthramp and our partner for finding the best
financial adviser.
We all
want to be financially secure during retirement. But doing something about it
can seem impossible.
When
we’re struggling to keep up with skyrocketing health care costs, runaway
college tuition, mortgage payments, taxes and an endless stream of bills,
building a sizable retirement nest egg seems more of a “would be nice” goal
rather than a “must do now” priority.
Unfortunately,
the clock is ticking. And unless you’re sure that a future windfall or
inheritance will bail you out of a retirement savings shortfall, it’s up to you
to ensure the security of your golden years. That’s why it’s important to
connect the financial aspects of retirement with your vision of what you want
your golden years to be like.
If this
is too daunting to do yourself, a qualified
fee-only fiduciary adviser can help. Meanwhile, here are five
important issues to start thinking about when you’re planning for retirement.
1. Create your retirement ‘wish list’
It’s
never too early to start thinking about how you’ll want to live during
retirement, all of which will determine how much money you’ll need to support
your lifestyle. You’ll want to consider:
• When
you’ll retire. The longer you stay in the workforce, the more money you’ll
be able to save for retirement through your 401(k) plan and IRAs.
• Where
you’ll live. If you decide to move somewhere else, you’ll need to consider
how much it will cost to live there in terms of housing, food, taxes and
transportation costs.
• How
you’ll live. If you plan to travel extensively, eat out more, or engage in
expensive hobbies, you’ll need more money than if you plan to live more simply.
2. Figure out where the money’s coming from
How
much you’ll have to spend each year will depend on how much money you have
coming in. Depending on your work history, you’ll generally have several
sources of retirement income.
• Social
Security. You can start taking Social Security at age 62, but your monthly
benefits will be significantly less than if you delay taking them until at
least your “full retirement age” (FRA), which is age 67 for those born after
1960.
If you
can wait until age 70, you’ll get the highest monthly benefits, which may be
significantly higher than your FRA benefits. You can use the Social Security’s Administration
Quick Calculator to estimate your own benefits.
• Retirement
plans and IRAs. You can start taking penalty-free withdrawals from pension
plans, 401(k) plans and traditional IRAs at age 59½. But it’s better to keep
these assets invested as long as possible, and then try not to withdraw more
than the annual minimum required distributions (MRDs) you’ll have to start
taking when you reach age 70½. And remember that these withdrawals are counted
as taxable income, so the more you take out the higher your tax bill could be.
There
are a variety of online calculators you can use to estimate your MRDs,
including this one.
And if you’ve contributed to a Roth IRA or Roth 401(k) you never have to take
that money out, and when you do the withdrawals are tax-free if you’re over age
59½ and have had the account for at least five years.
• Other
income sources: Don’t forget additional income you may receive from taxable
bank and investment accounts or rental income. You may even want to take on a
part-time job to bring in extra income.
3. Don’t forget about health care
The
longer you live, the more likely that health care costs will consume a
significant portion of your retirement nest egg. That’s why it’s important to
plan for them.
By age
65, you’ll want to enroll in Medicare as your primary health care insurance
provider. If you miss the enrollment deadline, you’ll end up paying significant
late-enrollment penalties, some of which may last until the end of your life.
And
don’t forget about long-term care, especially if there’s a history of dementia
or chronic illness in your family. Nursing homes or assisted living facilities
can cost more than $100,000 per year.
4. Save more, invest smarter
If your
calculations show that your retirement nest egg won’t be large enough to fund
the retirement you want, take matters into your own hands while you still have
time.
• Increase
your pre-tax contributions to your 401(k) plan as much as possible, even if
you have to cut everyday costs to do it. You’ll lower your taxable income, and
you’ll benefit even more from your company’s matching contributions (if they
offer them).
• Try
to make annual contributions to your IRAs as well.
• If
you’re at least a decade away from retirement, allocate at least 60% of your
retirement assets to stocks or stock funds. While stock prices are
generally more volatile than bond prices, over the long term they’ve
historically delivered better returns than bonds.
5. Hire a trusted expert to figure all this out
If all
of these suggestions seem overwhelming, don’t take on the burden alone. An
experienced financial planning professional can work with you to address all of
these issues, from estimating future retirement income and expenses to
recommending changes to your retirement savings strategy and managing your
investments.
For a
savings goal as critical as your retirement, you’ll want to work with a fee-only
fiduciary adviser. While many financial professionals claim to be
fiduciaries, only fee-only advisers can be trusted to act solely in your best
interests, the foundation of the fiduciary standard. That’s because they’re
paid directly by you. Unlike other financial consultants, they don’t earn
commissions or sales bonuses for trading stocks or selling mutual funds or
insurance, so they can serve you with undivided loyalty.
Need
help finding a qualified fee-only fiduciary adviser? Wealthramp can can connect you
with one in your area.
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