Retirement Planning for Dummies
Believe it or not, retirement planning doesn’t have to be a four letter word when it comes to saving for the future. Retirement planning for dummies makes the process simple by helping you understand the basic foundation of how retirement saving factors into your overall budget and financial portfolio.
Regardless of your age, retirement planning is nonnegotiable. But for baby boomers nearing the golden age of 65, retirement planning becomes even more critical. Did you know that one baby boomer turns 65 every 8 seconds?1 That averages out to roughly 7,000 baby boomers reaching retirement age each day.
Yet more and more baby boomers are delaying retirement due to financial strain caused by stock market fluctuations. This has caused employers across the nation to become concerned that there will soon be a shortage of workers in the next few years when retirees choose to finally leave the workforce.
The good news is that you can take advantage of retirement at the right time by planning ahead. While retirement planning at any age can benefit you greatly in the future, investing early on will allow you to leave your job at the right time instead of working through retirement to make ends meet.And the earlier you start, the better.
How to Plan for Retirement: Start Early
The first step in retirement planning is to start as early as possible. Today is the day to decide your future retirement date and begin planning from there. The earlier that you begin investing in your retirement fund, the more that your money can compound to allow you to take away a sizable investment by the time that you reach the age of 65.
This is yet another example of how the early bird gets the worm. Even if you only contribute a fixed amount into your IRA for 10 years and then contribute nothing for the next 30 years, you’ll still be better off than the person who delays starting a retirement account for 10 years and then contributes a fixed amount for 25 to 30 years.
If you are able to contribute to your retirement fund early and allow the money to grow, you will be earning more than someone who opens a retirement account later and still contributes monthly until retirement.
Plan Ahead: Consider Your Future
If you are able to predict your standard of living during your retirement years, you can make the wise decision now as to whether or not you should invest in a traditional or Roth IRA. People are living longer than before. If you retire at the age of 65, you could spend 20 to 30 years in retirement – meaning that you need to have the funds to support you and your family during that time.
If you are in desperate need of a tax break now, a traditional IRA will provide that by allowing you to deduct contributions from your yearly taxes. Yet you will still have to pay taxes on the money you withdraw from a traditional IRA come retirement. If you have the extra income right now and believe that you will be in a lower income bracket during retirement, then a Roth IRA is a better alternative. You will pay taxes on the money that you invest upfront and will withdraw tax-free to enjoy your retirement investment in full after you have reached retirement age.
Take Advantage of Employer Retirement Plans
Unfortunately, many companies have been cutting back on retirement savings plans and reducing matching contributions. If your employer offers a retirement savings plan, like a 401k, then by all means, take advantage! Use this opportunity to contribute as much as you can, especially if your company offers matching contributions.
If your employer offers a pension plan, find out about your coverage and the benefits that you will receive under the plan. You can also contact previous employers to check what pension benefits you may have incurred and how they can be applied to your retirement savings for the future. Last but not least, you may be eligible to receive benefits from a spouse’s employer retirement plan or pension plan.
All of these options should be exhausted before contributing to an independent IRA. Employer funded retirement plans or pension plans will provide you with extra padding to support and grow your IRA contributions for retirement.
Don’t Withdraw from Your Retirement Fund
This may seem obvious, but it’s important not to withdraw from your retirement savings unless it is a dire emergency. For example, even though a Roth IRA account allows you to withdraw funds that you have contributed without penalty, it’s still not a good idea to do so because every dollar you take out now would have been worth several dollars more after you retired. The case for withdrawing from a traditional IRA is even worse because you will receive a 10% IRS penalty for withdrawing before the age of 59 1/2.
Once money is withdrawn from either a Roth or traditional IRA, you are immediately losing out on your investment. The money that is withdrawn can’t compound in interest and contribute to your retirement savings. Withdrawing early is also an undisciplined practice that will derail your retirement plan entirely, dramatically cutting back on the amount that you could have earned if you had left the money in your IRA untouched.
Although losing a job, buying a home, or paying for your child’s college tuition may seem like valid reasons to withdraw early from a retirement fund, you are only hurting your financial future if you do. The entire point of contributing to a retirement account early in the first place is so that the money will remain untouched and grow with interest to comfortably support you in your retirement years.
Continue Investing During Retirement
Many people make the mistake of forgetting about their investments altogether once they reach retirement. Yet monitoring your investments becomes even more critical post-retirement because you will need to carefully manage risk exposure to make sure that your nestegg keeps pace with inflation at a minimum possibility for capital loss.
Consider the fact that you could have anywhere from 20 to 30 years of retirement.By keeping some of your retirement funds in an IRA or another money market investment, they will continue to generate income even if you are no longer working.
Retirement planning is a process that requires strategy and attention to detail. Creating a retirement plan as a part of your overall financial portfolio now is critical to ensure that you will retire on time and have enough income to provide support for several decades during retirement.
Don't Put It Off, Jumpstart Your Retirement Plan Today
A comfortable retirement can only be secured with prudent planning, aggressive saving, and disciplined investing. Online research is a good start, but consider the benefits of discussing your options with a qualified financial advisor. The alternative could mean lost opportunities, higher fees, and lack of discipline. Request a free, no-obligation consultation today.Speak with an advisor over the phone about your retirement plan for FREE.