Now that you’re on the homestretch of your working career the finish line is in sight: retirement. It’s an exciting time, filled with plans and thoughts of entering a new phase of life, and it’s also a reward for all of your hard work over the years.
An important question to ask of yourself, however, is “are you ready?” and not just ready emotionally and physically, but also financially. Having the resources to truly enjoy your retirement is vital. Making sure you’re on track financially means many things, not the least of which is avoiding the kind of mistakes that can derail your retirement. Let’s take a look at some of those while also recommending that you attend a retirement financial planning seminar for greater detail.
- Have a Plan
An easy way to make your retirement plan go awry is to not have a plan at all. Many people neglect to take the time to estimate how much they’ll need in retirement. While everyone’s retirement needs and sources of income are different, you’re probably like most people in that much of your retirement income will come from Social Security benefits and savings. How much savings and income will you need in retirement? Again, the number varies from person to person, but you’ll gain a better understanding by attending a retirement planning workshop.
- Don’t Cash Out Your 401(k)
There are many reasons why borrowing from your 401(k) account before retirement is a bad idea, not the least of which is shortchanging your future. Plus, early withdrawals come with penalties (10%) and there’s taxation on income. Look at it this way, too: any money you borrow now is money that’s unable to grow for you as you approach retirement.
- Don’t Forget About Healthcare Costs
A subject that’s likely to come up during a financial planning workshop is the cost of healthcare – particularly the cost of it during retirement. While there’s no way to calculate exactly how much healthcare coverage you’ll need, it’s important to have a rough idea. Estimates abound, but it’s safe to say that a 65-year-old, recently-retired, couple will spend approximately $250,000 (and more) for out-of-pocket healthcare costs in retirement.
There’s no reason to panic about retirement healthcare, however, and one way to ease your anxiety is to make wise choices about Medicare while choosing the plan that best fits your needs.
- Tax-Advantaged Retirement Accounts
Don’t be left out in the cold regarding tax-advantaged retirement accounts such as Roth IRAs, traditional IRAs, and 401(k) plans. For example, with a traditional IRA plan, you contribute pre-tax money – which reduces your taxable income for the year – and when you withdraw it during retirement, it’s taxed at your ordinary income tax rate. Meanwhile, a Roth IRA allows you to contribute post-tax money and then withdraw it tax-free in retirement.
- Don’t Underestimate the Length of Your Retirement
The good news is that Americans live longer than ever. That means more time to enjoy retirement and everything it entails: family, travel, hobbies, etc. But many people underestimate how long they’ll live after they retire and how much money they’ll need in their later years. Here’s something to think about: the Social Security Administration says that about one of every 65-year-olds today will live beyond the age of 90.
- (Fixed) Annuities Are Your Friend
Many financial planners recommend annuities as a sound financial investment, but what type of annuity you choose is important. Fixed annuities – rather than variable annuities – are the wisest choice because they not only start paying you (like a pension) at a certain point, but they don’t have the steep fees and restrictive terms of a variable annuity. Most importantly, an annuity will reduce your chances of not having enough money for the length of your retirement.
- Don’t Rely Only on Social Security
Your financial planning for retirement also takes into account Social Security benefits, but many people are lulled into thinking that those benefits will be enough to support them after they stop working. The average Social Security retirement benefit is less than $1,500 a month, although how much you collect depends on how much you earned during your working years. Not that you should take your Social Security benefits lightly, but they should be part your overall retirement strategy in retirement and not the main source of income.
Are you nearing retirement age or recently retired? If so, plan to attend a retirement income planning workshop to help ensure that you’re on the right financial path once your working years are over.
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