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It’s the one thing that everyone should be doing, but not everyone understands. Planning for retirement is essentially planning to be prepared for whatever life brings after you’re no longer working. It often involves income goals and the actions required to pursue your goals.
Everyone dreams of retiring early so they can live out the life they’ve always wanted. Unfortunately, most people aren’t as well prepared as they’d like. We’re here to help you understand the basics about retirement planning and help you get on the right track for your retirement goals.
Retirement Planning Goals
When it comes to retirement, most people have a “magic number” in mind. This number illustrates the amount you need to live comfortably during your retirement. The quest to reach this ideal number begins long before you retire, and possibly before you’re even thinking about retiring. In fact, the sooner you start working toward this goal, the better.
While everyone’s end goal is different, there are some rules of thumb that can help you calculate your magic number. The best thing you can do is sit down with a financial planner to determine how much money you think you’ll need to live out your retirement years comfortably.
Stages of Retirement Planning
Your retirement strategy will change over the course of your life. Your ability to invest as well as your investment methods will change as you reach your retirement goals. For example, younger adults may have limited money available to invest. However, they do have more time. This is why it is great for adults ages 21 to 35 take advantage of compound interest.
Compound interest allows your interest to earn its own interest. The more time you have, the more your money can earn. So even if your investment is small, less than $100 per month, then it can grow over time. You can always invest more money in the future, but you’ll never get that time back. So investing early on is very important.
Many young adults are also introduced to employer-sponsored investment opportunities. Qualified retirement plans such as 401(k) or 403(b) plans allow your employer to match your investment up to a specific amount. It’s important to know what they’re willing to match and take full advantage of the plan. However, you should also keep your retirement goals in mind as they may require you to invest more than the match minimums.
Another benefit of 401(k) plans are a higher rate of return when compared to a savings account. However, there is some risk involved. Your 401(k) contributions are withdrawn from your pay before taxes are taken. You won’t have to pay taxes on this money until after you withdraw the funds in your retirement. This gives you an immediate income-tax break when you need it most. Some people even base their contributions on what they need to do to drop into a lower tax bracket.
Other Retirement Options
Both the IRA and Roth IRA are other tax-advantaged retirement savings accounts. Contributions to a Roth IRA are taken after taxes are taken from your pay. While this eliminates the immediate tax savings it does avoid potentially bigger tax deductions when you withdraw the money after you retire.
There are limitations to every retirement plan and it’s important you talk to an experienced retirement planner to ensure you’re fully aware of all the risks and rewards of each type of plan. This will allow you to decide which plan or plans will be right for your goals.
Once you’ve settled on a retirement account then you’ll want to think about how you want to direct your funds. Many people are intimidated by the stock market and choose instead to invest in an index fund. Index funds require little maintenance. They also have various funds depending on your target retirement date. The different funds allow for asset diversification based on your ideal retirement age.
Continue Investing in Your Retirement
As you proceed through life it’s important to keep investing as you go. Any investment is better than no investment. Early midlife from age 36 to 50 is the best time for aggressive savings. Continue to take advantage of your employer’s 401(k) matching program. If you can, max out your contributions to your 401(k) and/or your Roth IRA. You’re able to have both at the same time so if you can do both then that’s best. If you’re ineligible for a Roth IRA you may want to consider investing in a traditional IRA instead.
Don’t forget about life insurance as well as disability insurance. It’s important to ensure your family will be able to survive financially should something happen to you.
As you near your retirement age your investments should become much more conservative. The last thing you want to do is put all of your savings into high-risk accounts. If you do that and lose a chunk of your retirement money then you have very few years to recover.
If you’re maxed out on your retirement-savings options then you may want to consider other alternatives. Things such as CDs, stocks, or real estate investments could all contribute to your retirement nest egg. Don’t forget about your Social Security benefits. Early benefits can begin as young as age 62 with full benefits starting at 66.
Now is also the time to research long-term care insurance. This type of insurance covers the cost of in-home care or a nursing home should you need it. If not properly planned for, this type of care has the potential to be very damaging to your retirement savings.
Help with Retirement Planning
No matter where you are on your retirement journey, it’s a good idea to check in with a qualified and experienced retirement planner from time to time. They’ll help make sure you’re on the right track to hit your goals. They can also help you decide if your goals need adjusting to keep up with the projected economy.
The experts at Virtus Wealth Management are only a phone call away. Our experienced staff can help you get on track with your retirement savings to help you understand what actions you need to take to have the retirement of your dreams.
Calll Virtus Wealth Management today at (817) 717-3812 to learn more about effective retirement planning.
The information provided here is for general information only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All investing involves risk including loss of principal. No strategy assures success or protects against loss. There can be no guarantee that strategies promoted will be successful and no guarantee of positive results.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.