If you are young, chances are you do not want to think about retirement just yet. Yet you will need to start planning for your retirement now, since the sooner you start planning and saving for retirement the higher the chances are that you will have a comfortable retirement that is well funded. People who put off planing for retirement early often end up struggling financially during what is supposed to be a happy and relaxing period of life, what some call the “autumn of life”. Putting off saving for retirement is the worst thing you can do for the rest of your financial life. You should open up a retirement account now if you have not done so yet and start putting away some money every pay period, no matter how small. To make things easier on you, you can set up automatic contributions to your retirement account. Even if you only put down 1% of your paycheck into your retirement account now, it will get you closer to your end goal. You can always increase the amount later.
The key to retirement is wise financial planing with a diverse portfolio. Why a diverse portfolio? Simply put no one source of income is perfect. Retirees should have a variety of sources of income, in case one source of revenue dries up you have others to fall on. Social Security is not enough to live off of, you will need investments to supplement that social security. Merely having a 401k or a Roth plan will not cut it either.
Sources of retirement income:
* Social Security
Social security can be withdrawn at age 62, but if you wait till age 70 your payments will be much higher. Payments are guaranteed to keep up with inflation.
* 401(k)s and IRAs
Allows you to defer taxes on retirement savings and investment earnings until you withdraw your money.
* Roth accounts
Unlike 401ks and IRAs you pre-pay the income tax on Roth accounts. Withdrawals after the age of 59½ are tax free.
Very few workers these days receive these. These are guaranteed by the Pension Benefit Guaranty Corp, insures pensions so that you are safe even if your employer should happen to go bankrupt. You can create your own pension as well by using their own savings, by purchasing an annuity.
Having a paid off home can qualify you for a reverse mortgage which will provide you with a steady stream of retirement income.
* Stocks and mutual funds
An excellent addition to your retirement portfolio. Can help you keep up with inflation and diversify your retirement portfolio.
These are always secure, but tend to pay less than other sources. Yet there is one advantage to including some of these into your portfolio; Treasury Inflation-Protected Securities, promise a rate of return above inflation.
* Savings accounts and CDs
To protect yourself and maximize the diversity of your portfolio, you should put one or more years’ worth of living expenses in these conservative accounts. These accounts are also backed by the Federal Deposit Insurance Corporation (FDIC). This source of income can be your emergency money when you are retired.
You need to crunch numbers and know exactly where you are going to be cash wise when you retire, and adjust your savings now if you find out that you came up short with your retirement funding. You will need to get a grasp of how much income you will need when you retire, so we need to estimate how much money you need to save. You should figure on replacing roughly 70% of your current income to live moderately and this is assuming you will have a mortgage already paid off by the time you retire, as housing and shelter expenses is one the highest expenses. This means when you retire you should have a monthly or yearly income of 70% of what you make now. If you want to travel often and dine out often when you retire figure on replacing 80% to 100% of your income. However if you are the frugal type, do not plan to travel often and can do without you could manage by replacing only 60% of your income when you retire.
Now that you have your base figure you need to figure out how to get to that end result. Brokerages that offer retirement planning will often have retirement calculators on their websites to help you with this. There are also calculators you can use on sites such as FINRA and Bankrate that have added options such as allowing you enter in how long till you retire, and it will show you how much your savings could potentially grow during that time. Now that you know how much money you need to save you simply need to start putting away money for your golden years. Try and make your investments as diverse as possible.
Some resources to help you plan:
AARP Retirement Calculator
iMaximize Social Security
Helps you to maximize your social security benefits
Helps see your overall retirement planning by plugging in all numbers and factors to give a detailed picture of your financial status when you retire. Has a $4.99 cost.
Remember the key to financial planning for retirement is to act now and to maximize and diversify your portfolio. Acting now and planning ahead will ensure your retirement years are well funded.