If you are closing in on retirement, planning for the day you leave the workforce is probably at the top of your mind. But retirement planning is critical at any age. It’s never too early to begin putting a retirement savings strategy in place.
Here are suggestions on how to plan for retirement based on the amount of time you have left to save and invest for your ultimate financial goal:
Stage 1 — Retirement is 10–20 or more years away
Don’t be fooled by the time-frame — even if retirement is 30 or 40 years away, you should think about putting a savings plan in place. If you are employed and a workplace retirement plan is available to you, it makes sense to start saving there. This is especially true if your employer makes matching contributions. Many younger people qualify, from an income standpoint, to make Roth IRA contributions as well.
From an investment perspective, take a long-term view. You should be in a position to ride out short-term market swings and maintain at least a moderately aggressive mix of investments in your retirement portfolio, seeking the greatest long-term return. The biggest advantage you have in your favor is time. The longer you can let your money work for you, the greater the opportunity to accumulate notable wealth from the dollars you’ve saved.
Stage 2 — The decade leading up to retirement
For many people, the final years before retirement are the peak income earning years. This also may be the time when financial commitments for goals such as paying for a child’s education are behind you. It is important to make large contributions to your retirement savings plans — through work, into an IRA or using other vehicles such as tax-deferred annuities. The emphasis now is to do all you can to prepare for the day when you will need to depend on your retirement savings to meet your lifestyle goals.
Note that those who are 50 or older are allowed to make what are referred to as “catch-up” contributions — additional sums above standard contribution limits that exist for workplace savings plans or IRAs. Take advantage of this special opportunity to maximize your savings.
Make sure you are prepared for unexpected events by having appropriate levels of insurance in place. Start thinking seriously about what age you plan to retire, and how other sources of income, such as Social Security or a company pension, will be affected by the timing of your retirement.
Stage 3 — Starting retirement
As you enter retirement, a lot of changes may occur. You need to determine how to generate current income from your existing savings while still trying to keep your money growing to meet your needs well into the future, when the cost of living is likely to be higher. You want to protect your assets from market volatility, but still be an active investor.
There are a number of other key issues to deal with as retirement begins, including:
- Applying for Social Security — the longer you delay taking Social Security (up to age 70), the larger your monthly benefit will be.
- Applying for Medicare — you need to do this when you reach age 65, whether or not you are taking Social Security. Also, to help cover expenses not paid for by Medicare, you will need a supplemental insurance policy.
- Determining other sources of income — you need to arrange for payments from a company retirement plan, and determine how you will draw income from your own savings, if you need to.
- Managing taxes — you want to take steps to help reduce the tax impact on any sources of income you receive.
Looking at retirement planning at three different stages of life can make it easier for you to keep a focus on achieving your ultimate financial goal. Consult a financial advisor to make sure you’re taking the right steps at the right time.
Michael W. K. Yee, CFP®, CFS, CRPC® Senior Financial Advisor Ameriprise Financial, Inc., 1585 Kapiolani Blvd., Ste. 1100, Honolulu, HI 96814, Tel: 808-952-1222 ext 1240
This communication is published in the United States for residents of Hawaii only; and this advisor is licensed only in the state of Hawaii.” Ameriprise Financial does not provide tax or legal advice. Consult your tax advisor or attorney. Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients. © 2010 Ameriprise Financial, Inc. All rights reserved