Retirement planning can be quite tough and overwhelming. Where do you start? With so much information out there how do you know you are getting the right information? My first advice is that if you are reading this you are on the right track because you probably care about your retirement and want to make the most of your retirement. If you are worried about retirement planning information you can probably weed out the bad information yourself. As a general rule if it seems like something that would generally improve your retirement then it probably is decent information. As for me here at Accuplan Benefits Services I only give advice that I myself try to keep and believe in. There are financial planners out there that only recommend investments or plans that only benefit them but that they wouldn't invest in themselves. If you financial planner is recommending something but wouldn't invest in it himself/herself you will want to take a longer look at if to see if it is truly a wise decision for you. The following are the ideas I believe in and try to follow for my retirement plan.
Setting Up Your Retirement Plan
As you begin to start thinking about your retirement it is vital to take all the appropriate steps to make sure you get the most from your retirement. Time is one of the biggest assets for retirement planning. The earlier you start planning and saving for retirement the bigger impact you can have on your retirement. Start today and take advantage of time. Figuring out where to start can be hard so hopefully some of these steps will help you jump start your retirement whether you are retiring in in 5 years, 15 years or even more than 30 years. While there are plenty of retirement planners who can help you with the whole process I don't believe that you should solely rely on their input. If you do use a retirement planner knowing these tips can help you with checks/balances for your retirement planner. You are the person that cares most about your retirement the more input and knowledge you can bring to the table the better you will be prepared for retirement.
Start Gathering Info
Start figuring out the data and gathering as much information about where you are at currently. Some simple questions to ask yourself are:
Do I have anything saved currently in any retirement accounts? If so, how much?
Does my employer offer any retirement benefits/plans? Do they offer a match? Are you contributing? Are you maximizing the match?
When Do you plan on retiring? 62 is the earliest you can start drawing from Social Security and 70 is the latest.
These are some of the basic questions you need to know to start the planning process.
Figure Out Your Retirement Goal
Once you know the answers to the above questions you can start to plan your retirement more accurately. You can also start using some online calculators that are actually pretty good at helping you figure out how much you are going to need by the time you retire and if you will actually be able to hit that goal. Currently my favorite calculator is by CNNMoney go check it out. You can also read about all the details that make up the calculator. It is a lot more in-depth than it looks. I like it because it is easy to use and still packs a bunch of data. I also like the retirement calculator by Bloomberg check it out. You can use these both of these calculators to compare and contrast as far as to where you should actually be for your own retirement and how much you have to contribute each year to get there. One you have a decent idea of where you need to be by the time you retire you can then move to the next step of the process.
Set Up Budget To Accomplish Goal Contributions
Now that you know what your yearly contributions are start contributing! If you feel like that is a whole lot easier said than done and you aren't sure you'll be able to contribute the amount you need to each year then you must look at the numbers. Look at your financial situation. How much are you spending and how much are you saving? If you aren't saving enough to be able to make your contributions what are you spending your money on? Are you spending on wants or needs? You must be really honest about this step. If you are not honest about this step and don't take measures to cut your spending on the items/services that aren't vital to your life (Cable TV is more than likely a want) than you have a good chance that you're going to be short on your yearly contributions. In order to get to where you need to be for your retirement you may need to downsize certain things and you might even need to change your lifestyle dramatically. Retirement is important though and you don't want to arrive at retirement wishing you saved a lot more money, especially when many of us spend a lot of money on stuff that doesn't matter nor that gives us lasting memories. Another important thing to do when creating your budget is to figure out how much you need to contribute on a per-pay-check basis. If your company offers retirement benefits setting up a per-pay-check contribution to your retirement account is quite easy. They may also offer a certain % match. It is wise to at least max out the contribution so you get the full match. It is a very smart decision to contribute on a per-pay-check basis because it is so much easier to spend extra money when you have it in your wallet or bank account. If your company doesn't offer retirement benefits and you're contributing to your own set up automatic payments to your retirement account that way you won't have to worry about spending it and it will force you to live off of a smaller amount. it is amazing how resourceful we can be when we have to be!
Contribute To The Best Retirement Account For Your Situation
Making sure you have the best retirement account for your situation is important. If you work for a company that offers retirement benefits it is most wise to contribute to that account. Those accounts are 401k accounts. If you do not the next most popular option is the IRA. 401ks and IRAs are basically the same thing except that 401ks are company sponsored plans. One of the biggest questions you'll have to answer for your account is whether you want a traditional or Roth account, whether it be a 401k or an IRA. Knowing the differences between a traditional and Roth is quite important to have the best nest egg as possible. To find out which account is right for your read more at Which Is Right For You? Traditional Or Roth? The same basic rules apply to 401ks and IRAs
Now That You Are Contributing Figure Out Your Investments
So you have started contributing to your retirement account but what are you investing in? Most retirement accounts are invested in stocks and bonds but you don't have to be limited to only those investments. Most retirement professionals suggest a diversified portfolio. A diversified portfolio is crucial to minimize a down economy. You may want to diversify with more tangible investments. These tangible investments are called non-traditional investments and some of the most popular non-traditional investments are real estate, gold, silver and private placements. In order to invest some of your retirement into these types of accounts you must set up a self directed IRA or self directed 401k with a custodian that allows self directed investing. Regardless of the type of investments you want to be invested in with your retirement account it is important that you know what you are invested in. You may find out that you are not comfortable with the investments you currently have and that is ok because there are lots of options. The more you know the more you can benefit your retirement.
These Changes That Can Affect Your Retirement
There are plenty of things that can affect your retirement in a negative or even positive way but these are a few you need to remember because they can have a big negative impact on your retirement account.
- Your Lifestyle- As you age so does your lifestyle and because of that the retirement you want may be completely different than it was 10 years earlier. You change over time so make sure that your retirement plan stays up to par with those changes.
- Your Career- While it is obvious that your career has a lot to do with how great your retirement can be but what about the length of the career? As you get closer to retirement you may get burnt out much quicker. You may have had the idea to retire at 65 but because of current work conditions or even health you may retire before that original retirement date. If this is the case for you you must change your retirement plan and expectations. You more than likely won't have the same amount you originally planned for and because of that won't be able to receive as much each year.
- Inflation- If you aren't paying attention to inflation then you could arrive at retirement realizing that much of what you thought you had won't go nearly as far and because of infaltion.
- Time- You may think about holding off saving for retirement until you are making more money and can then contribute more to your retirement plan. This is very bad idea and one of the worst things you can do for your retirement. Starting today has a huge impact on your retirement. I as well as many other retirement professionals wrote about how important it is to start early. If your curious to see how it really breaks down money wise take a loot at, Excuses That Can Ruin Your Retirement.
Things To Keep In Mind
Keep these things in mind when planning for your retirement and to make sure you are doing what is best for your retirement.
- Get the best deal with social security- Those who were born between 1943 and 1954 have a full retirement age of 66 and those born after that time at 67. If you were to claim Social Security at 62 you would get 25% less than if you waited until 66. Even more shocking is the fact that if you were to wait until 70 (you can't defer any longer than this) you would receive 76% more than at 62. The longer you wait to take Social Security the bigger affect it will have on your retirement. The longer you can hold out from claiming Social Security the less you'll need to withdrawal from your retirement accounts when you finally do claim Social Security.
- How much will you withdrawal each year during retirement- Most retirement planners suggest a 4% rule but with so many variables there is still a possibility that you could run out of money before you retire. Lowering your withdrawal percent to 3% can drastically prolong your money. Make sure you aren't taking too much out each year when you finally retire. The least amount possible will allow it to last longer.
- Health costs- Health care costs typically rise the older you get. Let's look at the facts, men who typically pay the average amount on prescriptions needs $122,000 saved by the time he retires. A women would need $139,000. This is just for prescriptions! The thing to remember with this is that you'll have higher health care costs in retirement. Make sure your nest egg can handle it all.
- As you age your spending goes down- All things aren't grim. Don't just assume because you just started retirement and your spending seems too high that your money won't last. The older you get the less dependencies you'll have. There is some light at the end of the tunnel!
Hopefully these steps and thoughts have helped you reevaluate or set up your retirement plan. One last bit of advice would be to seriously rehash your retirement plan at least every 5 years. Go through every step of the process and make sure you are still heading in the right direction. Make sure that if your lifestyle has changed that you put that into your retirement. You need to look at every aspect of your retirement during this reevaluation. The closer you get to retirement the more vital this checkup gets. If you can do a yearly checkup of your retirement plan that would be ideally but no less than every 5 years because things change and you need to keep your retirement in tune with that change.
Retirement is such an important step in our journey we call life. Make the best of your retirement by taking the time to plan as much of your retirement as possible. If you need more retirement information, especially information about self directed IRAs and 401ks please feel free to contact us today. We are here to help diversify your retirment by allowing you to invest in what you want through self directed retirement accounts.
Author: Nick Barker