With Proper Planning and Commitment, You Can Avoid Threats to Your Retirement
If you ask 10 people how they’d like to spend their retirement, you’d get an equal number of different answers. But whether it’s traveling the world, or living a comfortable life closer to home, most will agree, they want to be financially secure throughout the remainder of their lives.
Here’s an overview of some retirement risks and suggestions on how to handle them. But first, remember that plan you’ll need. You will develop it with your financial representative. He or she will help you determine what your goals for retirement are and develop a solid strategy to get your there.
- Failing to start saving earlier. When it comes to retirement, time can be your friend or your foe. The choice is yours. You want to be able to put time to work to your advantage. The money in your account compounds annually, meaning the interest accrued is added to your principle. If you want your money to grow exponentially, you have to start earlier to ensure your money has time to accumulate and grow. While it may be difficult to think about retirement when you’re in your 20s and 30s, this is the time to set up a savings program that will fund your later years.
- Living beyond your means. In order to have the money to save for retirement, you must live within your means now. Budget, save and live modestly to capitalize on your savings while you can. Commit yourself to spending no more than 30% of your income on housing, 50% on necessities (food, clothing and discretionary spending), with a full 20% of income moved straight into savings.
- Not understanding that you have options. Your financial representative can help you navigate the many retirement vehicles available and help you determine the right strategy for you and your family. Among the options available are 401(k)s, 403(b) and 457(b) plans, IRAs, Employee Stock Ownership Plans (ESOPs), Profit Sharing, and a variety of insurance products.
- While the primary purpose of life insurance is to provide benefits when they are most needed, it is also a very efficient tool for wealth generation, protection, and transfer. There are many types of insurance products out there, and not all are created equally. It’s important to find the product that will work for you and your situation. Your financial representative can provide you with the pros and cons of appropriate products so you can make an informed decision.
- Not putting your money into tax-advantaged accounts. They’re considered one of the best places to put your savings for a number of reasons. The two biggest, your contribution comes from pre-taxed income and is directly deposited into the account. If you don’t touch it, you can’t spend it. And that is the second biggest reason – you can’t touch that money before retirement without incurring a hefty penalty from the IRS. That’s a very good reason to let that money stay where it is, compounding and growing until you need it.
- Leaving money on the table. Many workplace retirement plans feature an employer match component. If your plan offers it, you should take the maximum company contribution offered. Employers match a percentage of the employee’s contribution to the plan. This is “free” money that can help your nest egg grow. Take advantage of it.
- Taking on the debt of others. While it may seem like a good idea to co-sign a loan with a friend or family member, it’s not – the risks far exceed the benefits. The reason is simple. While your credit score may benefit slightly from the monthly loan payments, a much bigger risk comes into play if the person you co-signed with decides to stop making payments. As the co-signer of the loan, you’ll be on the hook for the remainder of the loan. Although it may be difficult to say “no,” you should. Don’t co-sign any loan.
- Continuing to support adult children. The recent phenomenon of adult children moving back in with and being supported by their parents can be traced to the continued economic uncertainty. Whether it’s because their grown children can’t find jobs or their jobs don’t pay enough to live on, many parents are facing tough decisions as they near retirement. The one thing that they mustn’t do is draw down their retirement savings to pay for this unexpected expense.
- Outliving your money. Americans are living longer. With advancements in medicine, accessibility of quality health care, and an emphasis on healthy living, the life expectancy for American women is now 81years, with American men on average living until 79. While there are no guarantees, one of the best ways to avoid outliving your retirement funds, is to anticipate and plan for the possibility you may live 20 to 30 years beyond age 65. Your financial representative also will help you factor in rising health care costs, possible economic or world events, and other factors that impact the amount of money you will need. He or she also will show you how to ensure the money that outlives you can be successfully transferred to your heirs.
- Avoid drawing down on your retirement savings too quickly or too soon. The decisions you make during the first 10 years following retirement concerning how to spend your nest egg may be among the most important you’ll make. Unfortunately, many people make the mistake of thinking the money will always be there. The truth is without a strong retirement plan that includes wealth generation and protection, you may run out of money and be forced to live on your Social Security benefit alone.
Resist the urge to tap into your retirement funds to make big ticket purchases, such as a new home. Even if you have time to recoup the funds, there is no guarantee you’ll be able to. Be patient, and use your retirement money for retirement.
Perhaps the greatest threat to your retirement is you. As humans, we’re emotional when we should be logical. We procrastinate and often fail to follow-through with best laid plans. But, when it comes to your retirement, you have to think with your head. Run don’t walk to your financial representative, and with his or her guidance, develop and implement a solid strategy that will allow you to live retirement they want.