Off in the distance, the pavement changes. Don’t bust your binoculars glaring at the inevitable future. Get to planning for retirement. It is never too early to pinpoint your retirement goals and design your savings timeline. Establish when you want to retire, your annual savings contributions, and how long you may withdraw from your accumulation. This affects where you should allocate your savings.
Scottrade recommends to its clients to put at least 10 percent of their annual pre-tax salary into retirement savings. That nest egg can remain safe in different places. An employer backed 401k plan and IRAs have their own bumps and bucks. A 401k is tax deferred and often matched by an employer. Know how much your employer will match and start contributing at least that amount so you can take advantage of that bonus cash. Even part-time employees may join in on 401k saving, so the onset of retirement planning may be sooner for some. IRAs are a little trickier, because there are age and contribution limits on this ride. Both types of IRAs have annual maximums, which is $5,000 for those under 50 years old and $6,000 for those over 50. A traditional IRA has tax deferred growth and may be tax deductible if you qualify. But you must start withdrawing at 70 ½ years old unless you want pesky penalties. A Roth IRA has tax deferred withdrawals, but will not be accessible unless the holder has had the account for five years and is 59 ½ years old. Planning ahead requires knowing the details.
There are other ways to milk your assets. Consider an annuity, which is contracted through a life insurance provider. Contributions to this type of account are limitless, and payments are either fixed or variable for a predetermined date. Another popular route is a reverse mortgage. You may plan to borrow money against your home, and at your death your home will be sold by your heirs to relinquish the debt. This type of equity offers tax-free monthly payments. Social security should also be estimated and calculated into your monthly or annually retirement budget. Don’t miss out on opportunities to make money while in retirement.
Also prepare yourself for decisions regarding life insurance and assisted living options. These are extra retirement expenses that impact savings goals. Make legally bound decisions now, so they are easier to enforce as you age. Calculate how much extra money is needed to cover these expenses so you and your loved ones are not stuck with extra costs later in your life or at the end of it.
Merril Lynch’s Affluent Insights Quarterly survey reports six in 10 respondents having anxiety over the possibility that they would outlive their retirement savings. Foul financial circumstances can be avoided with the proper planning. That planning can start today.