Retirement planning should include determining time horizons, estimating expenses, calculating required after-tax returns, assessing risk tolerance, and estate planning. Start planning for your retirement as soon as possible to harness the power of capitalization. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people achieve financial freedom through our website, podcasts, books, newspaper columns, radio programs and premium investment services. However, for many people, that goal seems to be based more on aspiration than on real action.
According to the Boston College Retirement Research Center, approximately half of people who retire at age 65 will not be able to maintain their pre-retirement lifestyle. The old rule of thumb used to be that you could finance a stable retirement by saving 10% of household income annually. However, some experts recommend increasing that figure to 15%. A number of factors, such as longer life expectancy, a possible lower return on future investments and the disappearance of the pension, force workers to deposit more money in their accounts.
Americans, on average, spend 13% of their budget on food, but waste 30% of the food they buy. That represents almost 4% of the annual profits that go to the trash. The other accounts are offered by your employer (or by yourself, if you are self-employed). These include 401 (k), s, 403 (b), s and the Thrift Savings Plan (TSP).
In addition, your employer could improve the treatment by matching your contributions to your account. Those higher stock returns are why they're the preferred investments here at The Motley Fool. And you can get them by simply buying a total stock index fund or S&P 500, which, with a single purchase, makes you the legitimate co-owner of hundreds of the world's largest companies. That said, the stock market is volatile and unpredictable.
You can expect it to fall by 20% or more every few years, and by 40% or more once every decade. So the money you want to keep safe, especially if you need it in the next three to five years, should be kept in cash or bonds. Not sure which combination is right for you? Think of an objective retirement fund, which offers a prudent asset allocation based on your retirement date and gradually becomes more conservative as the date approaches. If you're behind in your retirement planning, being over 50 is a great opportunity to catch up and increase your savings.
Uncle Sam agrees, which is why contribution limits to retirement accounts are higher for people age 50 and older. The other important factor is to withdraw a reasonable amount each year. Because of the historically low interest rates on cash and bonds, the old 4% rule may no longer be as secure as it was in the past. Some research suggests that between 3% and 3.5% might be better, or use the percentages that determine the minimum distributions required to determine how much a retiree can spend per year.
If you think you would benefit from receiving objective guidance from an expert, consider hiring a financial planner who only pays fees. In fact, some will manage their assets (and collect a percentage of those assets) and, at the same time, provide retirement analysis; others will only provide advice and charge by the hour or by project. It's not a bad idea to see a retirement professional every five or 10 years, and especially right before you retire, to ensure that you're doing everything you can to have the retirement you've always wanted. And unlike simple brokerage accounts, your retirement funds grow tax-free.
In addition, you deposit funds into these accounts directly with your paycheck before the IRS keeps a portion. Therefore, contributing to a 401 (k) plan effectively reduces your taxable income. In addition, several companies that offer 401 (k) plans also offer a Roth 401 (k) option. While contributing to these plans won't reduce your taxable income, you can start making tax-free withdrawals once you turn 59, as long as your account has been open for at least five years.
You can use our 401 (k) calculator to project your returns and understand how to meet your retirement savings goals. Don't worry if your company doesn't offer a 401 (k) plan. You can open a traditional individual retirement account (IRA) through a bank or brokerage firm. These offer many of the same benefits as 401 (k) plans, including tax-deductible contributions and tax-free growth.
One way to start preparing to reduce healthcare costs in the future is to open a health savings account (HSA). You can think of them as 401 (k) for your health care expenses. Best of all, you can also make tax-free withdrawals as long as you spend the money on qualified health care expenses. If you have a 401 (k) plan, your employer will mail you disclosure documents that detail all the charges related to your plan.
Take a look at these to find out what your plan has the lowest cost funds. In addition, you can visit websites such as Morningstar that publish detailed data on funds, including their fees. Some financial advisors recommend that you deposit 4% of your retirement account each year during retirement. This may be too little or too much, depending on your financial situation.
That's why it's important to start planning as soon as possible. Remember that you would need at least as much as what you earn now just to cover your current lifestyle. The top retirement planning strategies can really pay off as you enter your golden years. It's crucial to save as much as you can in tax-advantaged retirement plans.
If your company doesn't offer a 401 (k) plan, you can open an IRA or Roth IRA at a brokerage firm. In addition, you should develop strategies to maximize Social Security benefits and invest in other accounts, such as HSAs or annuities. For most retirees, the most efficient way to create a financial plan is to combine an annuity with an additional lifetime income and Social Security payments clause. Both tools offer guaranteed monthly income for life, which can help cover your basic living expenses.
In general, the most effective way to kick-start your retirement portfolio is to work with a fiduciary financial advisor. He or she can help you control your daily finances, project how much money you'll need in retirement, and formulate a plan to get you where you need to be. At the very least, consider working with a financial advisor to establish a budget, formulate a realistic retirement plan, and eliminate problematic debts. If you're like most people, you might not be sure where to start when it comes to retirement planning.
In fact, if you have the right annuity plan, you can retire with a fraction of what most financial advisors, media, or publications say you'll need. Whether you're in your 20s and starting your career or you're an experienced professional who's ready to enter the golden years, it's helpful to know the key retirement planning strategies. With an annuity, you can accrue interest on your retirement plan without the risk of the stock market while raising income. However, it's important to remember that costs only increase over time, so it's essential to plan for inflation from the moment you retire.
A financial advisor can also help you determine what financial investment, if any, makes sense for your financial plan in retirement. Many retirees consider the distribution phase to be the “downsizing” phase, when they begin withdrawing money from their 401 (k) plan, IRA, pension, mutual funds, or other retirement plans. My goal is to help you take the guesswork out of planning for retirement or to find the best insurance coverage at the cheapest rates for you. So, if you're looking for a way to withdraw money from your retirement plan efficiently and risk-free, an annuity is the best option.
Lyndon Davis, Chartered Retirement Planning Counsel and Senior Vice President of Investments at Lyndon Davis Private Wealth Management at Raymond James, recommended the latter approach, given its highly flexible nature. .