If you are part of the “50 & Over” group, saving for retirement represents one of your most important financial goals. Reaching the elusive goal requires some soul searching, long term planning, and the ability to stay focused. In today’s world, we tend to look for the immediate fix; if you’re hungry there’s fast food, if you need to be entertained there are hundreds of options at your fingertips with the TV remote, and credit is generally available to purchase that new item that you just can’t wait to have. However, retirement planning is a far-reaching goal that takes years to accomplish — almost a foreign concept in today’s fast-paced 24-hour world.
Let these 5 steps keep you centered on saving for retirement.
DEFINE YOUR BUDGET
Reviewing and refining your retirement budget is a vital aspect of successful retirement planning. You can do that on your own, using several months of expenses for a base line. Or you can hand off your information to a Certified Financial Planner and allow them to build a plan that will work for you in retirement, using your individual expenses and potential income sources. Focus on your basic living expenses first and then look to your discretionary spending. Hopefully, your retirement income will cover your basic needs and more.
Regardless, there is nothing more important to your retirement budget than reducing your long-term debt (home mortgage, car loan) and getting a clear understanding of where your dollars go. Now is the time to make debt elimination a priority and assure yourself a financially secure retirement.
REVIEW YOUR RETIREMENT SAVINGS
Over the decades you have been focused on saving for retirement. Now that retirement is on the horizon, are you on track? While there may be other sources of retirement income (like social security, a pension and/or rental income) today’s retirees are receiving a larger portion of their income from their retirement savings. Below you will find a chart of Retirement Target Savings Benchmarks. Remember these are only general savings benchmarks (including dollars in employer plans, IRAs, savings, and even certificates of deposit).
Source: UBT Retirement Education Center
If you are concerned about the size of your retirement savings, there are actions you can take. You can work a few extra years, pump up your contributions to your retirement plan, or plan to work part-time in the first few years of retirement to supplement your retirement income and defer tapping your retirement plan for a few years.
TAKE ADVANTAGE OF “CATCH UP” CONTRIBUTIONS FOR THOSE 50 & OVER
The IRS allows anyone who has turned 50 to contribute extra dollars to their employer retirement plans and to their IRA. In fact, in 2017 if you turn 50 you can contribute a maximum of $24,000 in your Employer Retirement Plan (401(k)/403(b)) and $6,500 in an Individual Retirement Account (IRA). That’s an extra “Catch Up” contribution of $6,000 in your Employer Plan and $1,000 in your IRA, above and beyond the maximums for participants who are under 50.
If you need to grow your Retirement Savings taking advantage of the “Catch Up” contribution is a great option. An extra $6,000 invested in the market, with an annual return of 7%, over 15 years from age 50-65 could give you an extra $156,432 in Retirement Savings! (watch for potential increases in the maximums for 2018.)
CONSIDER YOUR RETIREMENT INCOME STREAM
Changing from “Saving for Retirement” to tapping those savings on a monthly basis can be challenging! There are all kinds of variables to consider, of course, but here are a couple of generalities to keep in mind:
- Find out if your Employer Plan allows you to stay in the plan and set up “Installment Payments”. It might be cheaper than moving your money into an IRA.
- Keeping your initial withdrawals low (4-5%) of the account balance gives you a higher probability of your dollars lasting for 30 years.
- Having 30% of your total assets invested in stock funds gives you a better chance of staying ahead of inflation.
- Waiting at least until Full Retirement Age (66-67) before you claim Social Security secures a higher benefit with a Cost of Living Adjustment (COLA).
- Make sure to withdraw the Required Minimum Distribution (RMD) at 70 ½ years of age or your penalty can be substantial. Remember, if you are still employed by the company there are no Required Minimum Distributions regardless of age from your 401(k)/403(b) plan.
Check out the Required Minimum Distribution Calculator. Other handy calculators can be found at:
HAVE A VISION OF YOUR LIFE IN RETIREMENT
Saving for retirement and deciding on a retirement income strategy are certainly important aspects of planning for retirement. However, of equal importance is discussing your retirement with those you love and knowing what you envision for your life after work. Remember, you could be in retirement for 25-30 years! What does your “Dream Retirement Vision” include?
Use the “What’s Your Retirement Vision” worksheet. More tools and news can be found here:
Stay focused on these 5 important steps to reach a successful happy retirement and enjoy those years when your toughest decision is where you want to eat lunch!