Retirement planning is just as important as saving for retirement in some cases, as it can ease financial pain and anxiety for years to come. Before you retire, ask yourself these questions to make sure you’re making smart decisions about your future:
These are tough questions to answer, but failing to do so can put your retirement savings at risk. There are many steps you should take before retiring that ensure you’re fully aware of where you stand financially and mentally before giving up work forever. Remember: it’s never too early (or too late!) to start planning!
When you hit age 70 1⁄2, you have to start making required minimum distributions (RMDs) from your traditional IRAs and qualified retirement plans, such as 401(k)s and 403(b)s. The IRS determines your RMD—which is calculated based on your life expectancy—but there are ways to ease your pain and postpone those RMDs. Here’s what you need to know about when, why, and how to take them. If you want to get more tax-advantaged income throughout retirement, it can be a smart move to delay taking these payments until later in your lifetime—even into your 90s or beyond.
Where you keep your retirement accounts can make a big difference in how much you’ll be able to withdraw when it’s time to retire. Factors like fees, interest rates, and penalties are all important considerations for your retirement planning decisions. As with many financial topics, there’s no right or wrong answer—there’s just what will work best for you. If you want to make sure that you’re making an informed decision about where to hold your retirement accounts, contact a local financial advisor today! Whether or not you choose to go with an advisor on your first try doesn’t matter; knowing which questions need answering is what matters most.
IRAs, or Individual Retirement Accounts, are an important part of any retirement plan and can help make sure you don’t outlive your money in old age. Though it may seem like a scary concept to start planning for something that is decades away, planning for retirement early can make it much easier on you once you get older. Be sure to talk with a financial professional about how IRAs can fit into your life and help ease your pain later on in life!
Though both traditional and Roth IRAs are useful tools for retirement planning, a Roth IRA stands out for many reasons. For one, you can put far more money into a Roth IRA than a traditional one—in 2015, anyone under 50 could contribute up to $5,500 per year ($6,500 if over 50), while those over 50 could add another $1,000 per year in catch-up contributions. Roth IRAs also have some attractive flexibility features that traditional accounts don’t have. You can withdraw your principal (contributions) at any time without tax or penalty; with a traditional IRA, on the other hand, withdrawals must start at age 591⁄2 (although exceptions exist). A Roth also allows you to make after-tax contributions along with your pre-tax ones; there is no such thing as an after-tax contribution in a traditional account.
If you cannot contribute to an IRA (or are not eligible for an IRA), there are still many options available to help you save money for retirement. In particular, your employer may offer a 401(k) plan with a match on contributions. If you do not have an employer-sponsored plan available, look into creating a solo or individual 401(k) to take advantage of these tax benefits and save for retirement at your convenience. A Roth IRA is another great way to invest for retirement. It allows you to set aside after-tax income and withdraw funds tax-free once you reach retirement age. It is particularly advantageous if your income level prevents a traditional IRA from being advantageous for reducing taxes now as opposed to saving for retirement later. Retirement planning can make managing pain easier by preparing yourself financially so that when medical bills begin arriving, it does not feel like additional stress from which it will be difficult to recover.
When preparing for retirement, there are a lot of decisions you have to make, such as whether or not to go with an IRA, a 401(k), or another investment vehicle. The first thing you need to figure out is which financial firm will be your trusted partner on your journey into retirement planning. It’s hard to know who’s truly going to work in your best interest and who might try and sell you something that isn’t necessarily right for you. If you’re feeling lost when it comes time to choose one (or more) investing companies, there are ways to cut through all of the confusion and find some peace of mind.
If you want to retire comfortably, you’ll need enough money to cover all your expenses—and more. But how much is that? It depends on where you live, whether you want a lot of leisure time, and how comfortable you are with risk. Retirement researchers suggest aiming for a replacement rate of 70% to 100% — income in retirement should be 70% to 100% as large as your before-retirement income — but it will vary depending on these variables. For example, if you have expensive tastes or no tolerance for uncertainty, it might make sense to aim higher. And if you’re willing (or able) to continue working part-time in retirement or sell an asset like your home when necessary, you might get by with less than 70%. On average, financial advisers recommend saving 10 times your annual salary by age 50 and 16 times by age 65; at 25 times income at retirement (assuming 3% inflation per year).
When you’re close to retirement, there are plenty of ways your employer can help out—and it doesn’t end with just financial assistance. As long as you have a year or more left on your employment contract, your employer might be able to cover some expenses that many people take care of right before they retire. Depending on what type of retirement plan you qualify for, those benefits may include: A paid vacation: If your company offers time off (or paid time off), you could get paid while you use up any accumulated time in your bank. For example, if you work 40 hours a week and accumulate four weeks of vacation by working an additional eight hours each week at straight-time pay, then eight weeks is all yours to take in one go. All other benefits continue during those weeks including health insurance and 401k matching contributions from your employer. A cash bonus: Some employers offer special bonuses for retirees who agree to stay until their last day.
