When the Work Is Done, the Fun Begins:
5 Keys to a Stable Retirement
Planning for Time and Needs
The most successful retirements are thought out well in advance. The earlier you plan for your retirement, the more funds you will have to live your best financial life once you shut the office door for good. The core elements of a sound financial retirement plan begin with assessing when you will retire and what you will need to live comfortably.
The Best Time to Put the Briefcase Down
In the United States, the average man retires at the age of 64 while women retire at 62. Typically, 65 years old is considered a prime retirement age. When you should retire is completely dependent on how much money you will need compared to how much money you will have on hand at the time. Through carefully funded investments during your working years and a well understood retirement plan, you may be able to take advantage of an earlier retirement should you desire. Every year longer that you are able to contribute to your retirement is another year that your previous contributions can continue to experience growth. This is why it is so critical that you understand what you will need to live on in your retirement.
More Than a Moment: Planning for Retirement Needs in Stages
Retire at 65
Move to a warmer climate
Pay for your children’s education
Each of these moments must fall into the assessment of when you retire and they will each require adequate funding. Breaking down these moments allows you to plan, invest, and save for each accordingly. If your child will need help with paying for dental school, you will need to save for that during your working years. Additionally, you will need to be able to handle the expenses of moving to that tropical paradise. And of course you want to have enough money to support your life from 65 on.
Overestimate Your Retirement Living Expenses
Unless you are naturally a very frugal person gifted at stretching each dollar to the max, you will most likely want to overestimate your retirement living expense needs. This is because, while many people think that they will live more simply once they retire, they often shoot for a monthly budget that is less than what they are accustomed to spending.
Unfortunately, this is often not the case. In addition to the ‘summer fever’ effect that can happen when someone first retires (i.e. they spend on a new car, a world trip, or some other large ticket item) there is also the fact that cost of living in the United States trends upward year after year.
No matter how much you want to curl up on a couch and read for the rest of your life, reality suggests that you will still want to go out to eat, buy clothes, experience unexpected expenditures that life invariably throws your way. Prepare yourself for this reality and worst case scenario, you’ll have more money than you need.
Acquire the Right Financial Tools
If you are planning retirement, there are many tools at your disposal that help your monthly income do more than just pay the bills today.
Your 401k is Your New Best Friend
If your employer has a 401k plan that you both contribute to each paycheck, your ability to plan for your eventual retirement will already be on solid footing. Keep in mind that the money in a 401k is not tax-free, but rather tax-deferred. This means that when you retire and withdraw money from your 401k, you will be taxed on the money at that time.
Do I Need an IRA?
An Individual Retirement Account, or IRA, is a tax-friendly account that can help supplement your retirement income beyond your 401k and Social Security income. Virtually anyone can purchase an IRA. You don’t have to work for a company to acquire an IRA. SEP IRAs, for example, focus on self-employed individuals. IRAs are tied to either stocks and bonds (if bought from a broker) or certificates of deposit and savings accounts (if purchased from a bank). While you can access funds in your IRA at any time, there is a 10% penalty for doing so before you are age 59 ½. Generally, it is best to leave the money in an IRA alone until at least that point in time. A solid retirement strategy involves as many tools available as you can afford.
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