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When it comes to saving for retirement, it can be challenging to know where to start and what to prioritize.
If you’re just starting out, you might have school loans and car payments. A little later in life, kids’ expenses, saving for college and paying off your mortgage might be competing for your hard-earned dollars. If retirement is just around the corner and you haven’t saved as much as you’d planned, remember that it’s not too late.
Whatever life stage you’re in, this handy guide can help you and your financial advisor decide what to do to develop or enhance your retirement savings plan.
If you’re first entering the work force, this is a great time to meet with a financial advisor to set some retirement goals and come up with a plan to reach them. Even saving a little bit consistently will make a big difference later on.
Now is the time to start building an emergency fund to prepare for the unexpected. Financial advisors typically recommend saving enough to cover at least three to six months of expenses.
At minimum, most people should have an estate plan that includes a will, a health-care directive and a financial power-of-attorney.
A will allows you to name beneficiaries of your assets and guardians for minor children and appoints a personal representative to see that your assets are distributed appropriately. A will can also create a trust to hold assets and instruct a trustee as to how to administer and distribute those assets.
A health-care directive appoints someone to make health care decisions on your behalf if you are not able to do so. And a financial power-of-attorney appoints someone to make financial decisions if you are unable to act, such as if you’re on vacation, in another country or in the hospital.
If your company offers a 401(k) plan, take advantage of it. Saving for retirement is very important, and contributing toward a 401(k) plan is a way for you to easily save for your future. Plus, many employers provide matching funds or contribute directly to employees’ plans. Contribute as much as possible – at least maximizing all matching contributions.
If you don’t have a 401(k) plan or other employer-sponsored retirement savings plan, open a traditional IRA (individual retirement account) or Roth IRA. You can also open an IRA even if you’re contributing to a 401(k) plan. An IRA is a low-risk investment for retirement that can be a good way to grow your money faster with tax-deferred earnings.
Your prime earning years – your mid-thirties to mid-fifties – can also be your prime spending years. In addition to your own school loans, mortgage and car payments, you might also be dealing with the rising costs of raising children and trying to save for their college educations. But saving for your retirement should be a priority.
Meet with a financial advisor annually to review your retirement plan and make sure you’re on the right track to meet your goals. You should also review and update your will, health-care directive and financial power-of-attorney. And if you change jobs, consider rolling over your 401(k) assets into an IRA.
Everybody should have some form of life insurance. The loss of a loved one is hard enough on a family without the financial challenges that can go with it. Some companies offer employees low-cost or free life insurance as part of their benefits. Meet with a financial advisor to make sure that is enough based on your lifestyle, family status, income and goals.
Saving for college
Set up a college savings account for your kids. It doesn’t have to be a massive endeavor – you don’t have to save the entire amount. But by starting early and saving often, you can reduce future out-of-pocket costs. The more you save, the less you and your children will need to rely on loans. Even taking small steps now can make college more affordable. And saving in a qualified college savings plan won’t have a dramatic impact on the financial aid your child is eligible to receive.
Boost your savings
Take small steps to boost your savings without breaking your budget.
You might not be ready to retire, but if it’s on the horizon, make sure you’re prepared, so you can enjoy your retirement when you get there.
Meet with a financial advisor to evaluate your retirement income including resources like savings, social security benefits, pension and any other income you might have from a part-time job, farm or business interest. Then, consider your retirement lifestyle, thinking about where you will live and how your budget might change. If you plan to travel, make sure to take those expenses into account.
Think about how you will handle long-term care expenses, such as a nursing home or assisted living. Seven out of 10 Americans age 65 or older will need some type of long-term care, according to the U.S. Department of Health and Human Services. Some options include long-term care insurance, life insurance and annuities.
Play catch up
If you haven’t saved as much as you need, there are some things you can do. People age 50 or over at the end of the calendar year can make annual catch-up contributions to their 401(k) plans. That means you can put more than the regular annual contribution limit into your account.
Review and update your will, health-care directive and financial power-of-attorney. You should also review your estate plan with your financial advisor. Planning is essential to provide for the intended disposition of your assets, to prepare for your family’s financial security, to secure necessary asset management for your beneficiaries and to save on estate settlement costs and taxes.
Retirement is the time for you to kick back and relax, but it’s not the end of your financial planning journey.
Continue to plan
A financial plan is always evolving. Meet with your financial advisor once a year to talk through your finances. It can be difficult for people to go from accumulating wealth to spending it. A financial advisor can help you make sure your spending plan matches what you’ve saved.
Know your numbers
Generally speaking, age 59½ is when people can start to access their retirement money without a penalty. Age 70½ is when you’re required to take a minimum IRA distribution, whether you need the money or not.
There are many situations to consider when you are figuring out a Social Security strategy. If you can afford to wait until age 70 to collect Social Security, your benefits can increase by as much as 8 percent per year between age 62 and 70, which can make a big difference throughout your retirement.
Retirement is about preparedness. It starts with understanding where you are and then planning when you want to retire and how to get there. Our goal is to cover your basic living expenses and add from there to enhance your lifestyle down the road. Contact Bell Bank Wealth Management, and we can help you put together a successful retirement plan.