Five tips to help Americans kick your retirement planning into overdrive:
1) Save, Save and then Save Some More!
You’ll never save enough for retirement if you don’t start saving now.
Put every penny you can into your company’s defined contribution plan,
(commonly referred to as a 401(k), 403(b), 457 plan, etc.) especially
if your contributions are being matched by your employer. You want to
shelter all the money you can from taxes and take full advantage of
your employer’s matching retirement plan contributions. Also, don’t be
afraid to look at after-tax planning vehicles like the Roth IRA or the
new Roth 401(k), which is now a permanent part of the tax code as a
result of the Pension Protection Act. We are not likely to see tax
rates as low as they are now, so it may make sense to grow assets that
you won’t have to pay taxes on later.
“While it may be hard to give up the current year’s tax deduction, you
should ask yourself which makes more sense: paying tax on the seed
(your original contributions) or the crop (your earnings). In most
cases it makes more sense to pay taxes on the seed. That’s why we like
the new Roth 401(k)s,” says Hinds.
2) A Retirement Account is NOT an ATM
Don’t even think about touching the money you put toward your
retirement. “Think of your retirements as a black hole,” says Hinds.
“Once you’ve contributed the money, tell yourself that it’s
untouchable.”
Hinds says that having a good reason to withdraw money doesn’t matter.
While you may think it wise to pay off debt or buy a bigger house,
remember that you will likely have to “pay yourself back with interest”
for any loans you take against your company-sponsored retirement plan.
If you have a self-directed IRA, you will incur taxes and penalties if
you withdraw the money too soon. Worse than that, says Hinds, the money
will not be growing – either tax-free or tax-deferred, depending on the
type of IRA you’ve got. Early withdrawals for the wrong reasons put you
further away from your goal of achieving a secure retirement.
3) Social “not much” Security
If you were counting on Social Security benefits to help supplement
your retirement savings, think again. Most experts agree that the
social security benefit program that our parents and grandparents knew
will not be the one we experience. According to many studies, within
the next decade, Social Security will begin to pay out more in benefits
than it will collect in taxes. Hinds warns that the Social Security
check that arrives in the mail each month will not likely be a
meaningful contributor to retirement income, and says the need for
people to develop their own effective retirement planning strategies
has never been more important.
4) Diversity Matters
A diverse portfolio can be your ticket to stability. By creating a
diversified portfolio – and not just among stock sectors – your
investments may perform more stably. An investment portfolio should
include stocks, bonds and money market securities. According to Hinds,
having technology stocks, airline stocks and automobile stocks does not
constitute diversification.
“Investors should look to strike a balance, to create a diversified
portfolio that will help them reach their retirement goals effectively
and safely. And, while the core part of your portfolio should include a
strategic mix of stocks, bonds and cash, a portion should be devoted to
more progressive strategies aimed at producing greater potential
growth. Some of the newer strategies even have built in income
protection in retirement, while still having the growth potential of
the stock market,” she says.
Diversification seeks to improve the performance by spreading your
investment dollars into various asset classes to add balance to your
portfolio. However, using this methodology does not guarantee a profit
or protection from loss in a declining market.
5) Retirement Planning is a Rolling Stone
If you switch employers, consider rolling your retirement plan into a
self-directed IRA account — not your next employer’s 401(k) account. A
self-directed IRA opens additional investment options not available in
a 401(k) account and provides the opportunity to create a Stretch IRA,
a great distribution and legacy planning strategy. Although it is
tempting to take the cash and treat yourself to something nice, the
responsible thing is to preserve your retirement funds.
“Leave that money alone. You want it to grow so that you can enjoy a
secure retirement later,” says Hinds. “The average American gets a new
job every four years. If a retirement plan is cashed out every time a
person gets a new job, that person will never be able to retire and
live a similar lifestyle from his or her savings. That doesn’t even
take into account the tax penalties associated with cashing out a
retirement account.”
For more info: http://www.granitefinancial.net/
Five Perils to Your Retirement Well-Being (PR Web)
Long-time Financial Advisor Offers Tips to Supercharge Retirement Planning
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