By Blake Limbaugh, CRPS®, Financial Advisor
Retirement may seem like it’s an event off in the distant future, but it’s a reality that gets closer every day. The kind of retirement you eventually have will be determined by decisions you make now. Whether you’re a recent graduate or someone who’s been in practice for years, here are some simple strategies to help you retire like royalty.
Think about What Retirement Looks Like
A lot of people have a hard time imagining their life after they’ve stopped working, so taking the time to think about what retirement will look like for you is a great place to start. Do you want to travel, retire to a vacation property, or divide time between homes in different states? Your ideas may change over the years, but having a plan makes retirement real, gives you a goal to work towards, and provides the motivation you need to stay on track.
Take Advantage of Retirement Savings Plans
If you’re employed by a business that offers a 401K plan, be sure to sign up as soon as you’re eligible. If you’re offered a matching benefit, look at that as free money and contribute enough to get the maximum benefit. If you have an IRA, max out your annual contributions – $6,000 if you’re under 50 and $7,000 if you’re over 50. These plans are a relatively painless way to jump start retirement savings.
Make a Budget
It’s hard to stay on track without a budget. It also gives you a handle on your living expenses which will help calculate how much money you’ll need for retirement. A budget also helps answer questions like: Will 80% percent of your current income be enough for retirement? What’s the impact of having your mortgage paid off? How much more money will you need if you want to travel? How much will you save if you downsize homes? A budget will provide a reality check as you navigate the planning process.
Increase Contributions Over Time
The best practice is to increase contributions to retirement savings as your compensation goes up each year.
Have Different Types of Plans
Don’t put all your eggs in one basket or all your retirement funds in one type of plan. You should have a mix that allows you to leverage choices. For instance, some of your funds can go into a Roth IRA, and some can go into a traditional IRA. Because the Roth IRA is funded with after tax dollars, it can grow over time without any tax liabilities and withdrawals aren’t taxed. A traditional IRA is funded with pre-tax dollars, so withdrawals are taxed, and it has Required Minimum Distributions that start when you turn 72. There are advantages and disadvantages to each and having both types of funds gives you leverage.
When to Start Social Security
Social security will be part of the mix and the age you retire determines the size of your monthly check. If you begin drawing social security at age 62, your benefit is reduced to 75% of the full amount. At age 65 you’ll receive the full benefit, at 67 you’ll receive 108% and if you delay social security until age 70, you’ll receive 132% of your full benefit. To find out about how much you can expect to receive from social security, go online to estimate future benefits.
Don’t Fear a Down Market
When you’re young, time is on your side so don’t be afraid to put money in the market when it’s down. In fact, for someone in their 20s, 30s, or even 40s, a down market is the perfect time to invest because everything’s on sale which means your investment costs less. You actually get more for your investment because the potential for growth is so much greater. Historically, we’ve had a down market about every eight years, but our current run has lasted 14 years, making it one of the longest up-market runs ever. Not everyone has enough time to wait for the market to recover because they’ll be retiring soon, but if you have a while to go before retirement and you have money to invest, this is the time to do it.
Work with Your Financial Advisor
Working with a financial advisor will help you stay on track. It’s easy to procrastinate and tempting to tell yourself that it’s okay to shortchange your retirement account this year because you’ll make it up next year. A good advisor strikes a balance between being your cheerleader and holding you accountable. When circumstances change, they will help you make smart choices as you adapt your plan.
If you have questions about how to save for retirement schedule a call with our team at Engage Advisors. We are ready to help you make a plan so you have the resources you need to retire like a royal.