Retirement Planning

Saving For Retirement

We all want to save for retirement, but there never seems to be enough money left over to save. Does this sound familiar?

The first rule of saving for retirement is, if you are offered free money take it. If your employer sponsored retirement plan offers you matching funds, take it. Contributing to a retirement plan through your paycheck is a great way to get started on the path of regular automatic saving. The earlier you start this habit the better off you will become. On the other side if you haven’t done this, it’s never too late to start now. In this case, free money is a good thing

Next you want to manage your debt. Debt is the enemy to your budget, so you want to avoid it at all cost. I am not saying don’t borrow or use credit, what I am saying is to use it wisely. Don’t become a slave to your debt and that you live paycheck to paycheck trying to keep up with your debt payments.

Charge wisely and only amounts that you can pay off easily. If you find yourself with an emergency and you have to borrow money, evaluate your options and make the choice that is best for you and your budget. Pay back the debt as quickly as possible to avoid as much of the finance / interest charges as possible.

Lastly, gratification – are you someone who needs instant gratification? Do you buy without a payback plan? Look at the food cost (groceries, dining out, take out etc.), shopping, memberships, entertainment etc. These are the expenses, that where the instant gratification that can harm your budget. These are the first defense against the leaks in your budget. Plug those holes to have more money for your retirement.

Think about your finances then make a plan to implement these strategies one by one. Once you master one, start the next. Remember that your finances will not change overnight, be patient and remember it takes time.

What will your retirement income be?

Remember these?

You used to receive one in the mail around your birthday. If you are younger than 50, you probably threw it directly into the trash. (It’s much more interesting the closer you get to retirement.)

Now you can just go online

To see your Social Security statement, go to www.SSA.gov (If you have trouble remembering it, just think “ass backwards” then “gov”). You’ll need to set up an account with the typical personal details plus security questions to verify your identity. If you want added security, you can take it a step further and use information from a prior year’s W-2.

Why do you want to see it?

To verify your earnings. It’s a lot easier to correct errors when they are new.

To help you plan how and where you will live at retirement. You can see how much you will earn when it’s your time to collect. Is it enough to cover your mortgage payment? Is it enough to continue with your hobbies or cover basic expenses?

To help you decide when to retire. You will be able to determine your Full Retirement Age (based on year of birth). Currently, you can take your social security benefits early at age 62 with a lower monthly payout or wait as late as 70 to receive a greater payout.

Protecting your account

You can add extra security by having them text you a unique code every time you want to sign in online. In a surprise twist, setting this up initially involves them sending you a letter in the mail. It’s a process that takes 5-10 business days, but once it’s done, you can rest a little easier. I recommend taking this extra step, since everyone’s had their information compromised at least once or twice in the last few years.

I would suggest that you check your Social Security statement annually – either a month or so after you file your income tax or around your birthday. The important thing to do is to check it.

Social Security: When and How Much?

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You may not be thinking about Social Security for yourself yet, but if you, or someone you know, has reached age 50 or beyond, there are some things that you might want to consider before making your choices.

When can you receive your full social security benefits?

It used to be that everyone was eligible at age 65. Now, anyone born between 1938-1959 has to use the Social Security retirement age chart to find their exact retirement age. Why? Because in the early 1980’s they decided to increase the age to 67 but didn’t want to hold out on those close to retirement. Instead, they gradually increased the retirement age by tacking on an extra 2 months for each year by birth year.

Based on our birth years, my husband Dave can retire at age 66, but I need to wait until I’m 66 and 10 months. It finally evens out for those born after 1960 – they’re currently holding at age 67.

Of course, to qualify for Social Security you have to meet the required credits. If you work and pay taxes, you will earn social security credits (typically 4 credits per year worked). You need to work at least 10 years (40 credits) to receive your own retirement benefits. Other types of benefits are available depending on your circumstances.

What happens if you start early and take partial benefits?

During the holidays, a group of us were talking about social security and what age we planned to start taking benefits. The group consensus was to start with partial benefits at age 62. Yes, for some that makes sense, but not for everyone.

Consider this: If you take your benefits before your full retirement age, you’ll receive reduced benefits for life (by as much as 25% less). In addition, if you’re still working and collecting social security, you’ll have income limitations each year.

On the other hand, if you delay your benefits past your full retirement age, your benefits will increase both for delaying and by annual cost of living.

The bottom line: What your family and friends do may not be what is right for you. Our family conversation brought up some interesting questions. We decided to speak with one of our investment advisors to understand what was best for us. He had a novel option that worked really well for our situation. You see, the best choice for us wasn’t to take the benefits at 62… or to wait. When Dave turns 62, we’ll be using that advice to start our golden years in the best way possible.

Do your research and make a plan that is right for you and your family.

P.S. This important advice came courtesy of our readers. Thank you, Betsy!

Jill,

Another bit of information is that a wife can collect on her husband (or visa versa) at age 62 and then collect on themselves at full retirement age and not have the reduced benefits for life.

Betsy Thomas

Transfer to Savings Automatically

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Have you struggled to save money because there never seems to be anything left over? Big surprise! We tend to spend the money we have in front of us. Getting a raise never seems to help, because that money disappears, too. There’s always something we think we need right now.

The best way to grow the money in your savings account is by setting up an automatic deposit from your paycheck. That way you never see it to spend it. If your company doesn’t offer this, that’s not a problem. Have an amount set up to be transferred automatically from your checking account to savings on a regular basis. The benefits here are that you are saving without any effort on your part and the money isn’t in your checking account to tempt you.

Make Payments towards Your Retirement

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Making payments towards retirement doesn’t have to be difficult. Remember what you’re saving money for. You want to retire some day, so you can enjoy some golf and vacations when you get older without having to work.

There are few ways to fund your accounts. If you receive large bonuses, you could simply deposit them into your IRA or 401K and just live within your regular paycheck. That won’t be possible for everyone. Most of us calculate the amount to pay by dividing our maximum contribution amount by the number of pay periods per year. Basically, we’re taking the money out of our paychecks.

The key is to act like it’s not yours to spend. This is your fun money, so you can take the grandkids to Disneyworld and finally take the European cruise, without having to worry about where you’re going to live or how.

Shop around before opening an IRA

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Opening your own IRA is a great idea, but do your research first.

Make a few appointments to interview banks and investment companies. What are their fees? What types of investments do they offer? There are many options to choose from.

If Your Company Doesn’t Offer a 401K, Get an IRA

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If your company doesn’t have a retirement plan, then you should start an IRA or a ROTH IRA.

An IRA account is for saving pre-tax money to be able to withdraw later in life when your tax rate should be lower.
A ROTH IRA is the opposite. You contribute after tax money now and withdraw tax free at retirement.

Talk with your investment person or tax preparer to determine what is best for you. Discuss the income limits and the maximum contribution amounts you can contribute based on your age. Have this discussion today.

If Work Offers Retirement Savings, Do it

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I can hear you saying… “I don’t have enough money to live today, so how can I think about saving for retirement?” Yes, that might be true, but look at it another way… you will get older and you will want to retire some day. If you don’t start now you’ll have to work the rest of your life.

If you work for a company that offers a 401K or 403B, take advantage of it. If your company offers you matching funds and you haven’t taken advantage of it, then you are turning down FREE money. As an added benefit, the money you contribute is tax free today, and any growth in your account is not taxed until you withdraw it.

Talk to your company benefits person and start an account as soon as possible. If you need to wait for open enrollment, mark that date in your calendar.

If you already have a retirement savings with your company, increase the amount you contribute so you’ll have more later when you really need it.

You’ll have to prove it. Make sure you have the paperwork.

Things that mean very little in a court of law:

Your memories
Your mother’s memories
Your friends opinions
Photos of you smiling with some of your stuff in the background.

What am I getting at? I want you to face the fact that paperwork is part of life.

You can have a lot of wonderful things without legal documents: love; a nice meal; a beautiful sunset. But, you can’t get legally married, register the birth of your child, or insure your home without them. So, if you’re basking in the glow of a beautiful sunset in your own backyard, enjoying a barbecue, and surrounded by family and friends – there was paperwork involved.

Don’t slack on it. Strive to keep it up-to-date on an annual basis. Neglecting your paperwork can be just as bad for your family life as neglecting a loved one’s birthday.

Go through your files and check up on your:

Life insurance
Long Term Care insurance that may combine with life insurance
Retirement accounts – IRA’s, 401K / 403B, Roth IRA’s
Savings bonds
Bank accounts that are payable on death
Investments (stocks, bonds etc)

Legal documents are too often overlooked and the results can be devastating. Who’s in charge of your stuff if you suddenly pass away. If you haven’t updated your paperwork, you may have left everything to an unreliable friend, or a deceased parent instead of your spouse or adult child. In this case, I suggest that you name a second beneficiary. For our wills, we even have a third beneficiary. My attorney suggested this and it’s terrific. When my father passed away, I didn’t have to update my will. My second choice was already in place. How easy was that?

I know you’re busy, but when you, or your family, are dealing with a major life crisis, you won’t want to spend time thinking about these things. Make a habit of reviewing your important documents on a regular basis so your loved ones will receive the things you labored to give them.

If you need more convincing, check out this ABC news story

Are you preparing for retirement?

It is so important to prepare for retirement. It really is better to put aside money now so you can have those happy golden years later.

So, what should you do?

You can contribute to an IRA, or Roth IRA, by depositing up to $5,000 each year. If you are at least 50 years old, you can contribute $6,000 for each year. (Those guidelines could change, so visit www.IRS.gov if this is an older post.)

Also speak with your tax preparer, investment person, and/or your banker; all will be willing to give you their professional advice. Depending on the type of account you have, and your income level, the contribution to your retirement account may be tax deductible for you.

If you are thinking, “I don’t have $5,000 to contribute!” (that’s $416.66 a month or $96.15 a week), it doesn’t have to be an all or nothing situation. Make a plan so you can contribute an affordable amount on a regular basis, then increase it over time. Remember to have it withdrawn automatically so that it bypasses your checking account. It will add up over time.

The earlier you start, the more money you will have when you retire.

That’s my advice. What are you doing prepare for retirement? Let me know in the comments.