How to plan for Retirement

A happy and stress free retirement is something everybody deserves after a lifetime of work. This can be attained with a little planning and forethought. Taking the time to envision how you’d like to spend your time when you retire, will help ensure that you enjoy your later years.

No matter what stage you’re at in your working life, there is no better time than the present to make plans for your future retirement. The sooner you begin saving, the more time your money has to grow. Each year's gains can generate their own gains the next year. Set goals for yourself, devise a plan and stick to it.

Financial advisors estimate you will need approximately 70 -80% of what your expenses were before retirement, in order to enjoy a similar standard of life that you have become accustomed to. If you have your sights set on travelling or you want to buy a second home, you will need to save about 10 percent more.

Planning for the possibility of living longer than you now expect is also recommended. Consider the possibility of being on a fixed income for as long as 20 or 30 years.

The best places to save for your retirement are tax favoured retirement accounts such as IRAs – Individual Retirement Accounts – and 401(k)s.

The advantage of these start-up investments is that your employer automatically deducts the money from your paycheck and often matches your contributions.

For example if you earn $50,000 a year and your company matches 50 cents for every $1 you contribute to your 401(k), you must contribute at least $3,000 to receive your employer's $1,500 match.

You also escape the usual income tax on your savings until you start to withdraw the money.

 

Some companies automatically enrol employees in their 401(k) plans, however you may need to complete a simple form to participate in your plan. You'll determine how much to save and select your investment options. You should aim to contribute 15% of your salary, including any employer matching contributions. As you get future raises, allocate a portion for retirement savings.

Your IRA contribution may even be tax deductible, further saving you money on this year’s taxes.

You can put up to $4,000 a year into an IRA ($6000 if you are 50 or older) and gain tax advantages.

A Roth IRA can allow you to access your retirement fund without income taxes, although you won’t receive a tax deduction for any contributions you make, your money will grow tax free. If you are single and your income is $116,000 or less or if you are married and have a combined income of $169,000 or less, you can contribute to a Roth IRA.

If you change jobs, roll over your savings directly into an IRA or your new employer’s retirement plan. It is vital not to dip into your retirement savings. You’ll lose principal and interest, and you may lose tax benefits.

403(b) Plans are also known as Tax Sheltered Annuities, or TSAs. They are retirement plans for non-profit organizations that are similar to 401(k) plans. Investment options in 403(b) plans include annuities and mutual funds.

Keogh Plans are retirement plans for self-employed people. Rules covering contributions to Keoghs are more complex than those of IRAs. The amount you may contribute on a tax-deferred basis will depend on your net earnings from your business. Contributions and all earnings accumulate free of tax until withdrawn, usually at retirement.

It is no longer feasible to expect to survive on a Social Security Retirement Benefit. As of 2004, the average annual Social Security retirement benefit is approximately $11,000, and this is unlikely to change. As the baby boomers retire and put a strain on Social Security, benefits will have to be cut or taxes raised.

As you approach retirement, you may want to reduce your discretionary expenses and attempt to live on a fixed income. Adjust your asset allocation based on your spending patterns. If you are spending more than your assets are earning, you may have to lower spending and take more risks in the hope of increasing your returns.

Ask for advice. A good financial professional will be able to offer you a second opinion on your plans and offer suggestions on the best strategies for meeting your goals.



 
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