But What Is Retirement Planning?
Retirement planning is the process of figuring out how much money you’ll need to save for retirement and then putting a plan in place to get there. Retirement isn’t an age—it’s a financial number! Be confident about your retirement.
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Here are a few questions I want you to ask yourself as you start planning for your retirement:
• What do I want to do in retirement?
• When do I want to retire? How much money will I need to save by the time I retire?
• How much will I need to invest every month to hit my retirement goals? Which retirement accounts should I use?
• What should I be investing in within my retirement accounts?
• What about medical expenses and long-term care in retirement?
• Why is a retirement plan so important?
Because it gives you a clear path to success. It inspires you to take action. So take some time to sit down with your spouse, maybe meet with a qualified investment professional, and start answering these questions. The sooner you start planning for retirement, the faster you’ll be able to make progress.
Financial security in retirement doesn’t just happen. It takes planning and commitment and, yes, money. Facts n Only 40 percent of Americans have calculated how much they need to save for retirement.
In 2018, almost 30 percent of private industry workers with access to a defined contribution plan (such as a 401(k) plan) did not participate. n The average American spends roughly 20 years in retirement. Putting money away for retirement is a habit we can all live with. Remember…Saving Matters!
- Start saving, keep saving, and stick to your goals
If you are already saving, whether for retirement or another goal, keep going! You know that saving is a rewarding habit. If you’re not saving, it’s time to get started. Start small if you have to and try to increase the amount you save each month. The sooner you start saving, the more time your money has to grow (see the chart below). Make saving for retirement a priority. Devise a plan, stick to it, and set goals. Remember, it’s never too early or too late to start saving. TOP 10 WAYS TO PREPARE FOR RETIREMENT
- Know your retirement needs Retirement is expensive.
Experts estimate that you will need 70 to 90 percent of your preretirement income to maintain your standard of living when you stop working. Take charge of your financial future. The key to a secure retirement is to plan ahead. Start by requesting Savings Fitness: A Guide to Your Money and Your Financial Future and, for those near retirement, Taking the Mystery Out of Retirement Planning. (See back panel to order a copy.)
- Contribute to your employer’s retirement savings plan
If your employer offers a retirement savings plan, such as a 401(k) plan, sign up and contribute all you can. Your taxes will be lower, your company may kick in more, and automatic deductions make it easy. Over time, compound interest and tax deferrals make a big difference in the amount you will accumulate. Find out about your plan. For example, how much would you need to contribute to get the full employer contribution and how long would you need to stay in the plan to get that money. Years 5 15 25 35 $829,421 $379,494 $150,774 $34,504 THE ADVANTAGE OF STARTING EARLY Start now! This chart shows what you would accumulate at 5, 15, 25 and 35 years if you saved $6,000 each year and your money earned 7% annually.
- Learn about your employer’s pension plan
If your employer has a traditional pension plan, check to see if you are covered by the plan and understand how it works. Ask for an individual benefit statement to see what your benefit is worth. Before you change jobs, find out what will happen to your pension benefit. Learn what benefits you may have from a previous employer. Find out if you will be entitled to benefits from your spouse’s plan. For more information, request What You Should Know about Your Retirement Plan. (See back panel for more information.)
- Consider basic investment principles
How you save can be as important as how much you save. Inflation and the type of investments you make play important roles in how much you’ll have saved at retirement. Know how your savings or pension plan is invested. Learn about your plan’s investment options and ask questions. Put your savings in different types of investments. By diversifying this way, you are more likely to reduce risk and improve return. Your investment mix may change over time depending on a number of factors such as your age, goals, and financial circumstances. Financial security and knowledge go hand in hand.
- Don’t touch your retirement savings
If you withdraw your retirement savings now, you’ll lose principal and interest and you may lose tax benefits or have to pay withdrawal penalties. If you change jobs, leave your savings invested in your current retirement plan, or roll them over to an IRA or your new employer’s plan.
- Ask your employer to start a plan
If your employer doesn’t offer a retirement plan, suggest that it start one. There are a number of retirement saving plan options available. Your employer may be able to set up a simplified plan that can help both you and your employer. For more information, request a copy of Choosing a Retirement Solution for Your Small Business. (See back panel for more information.)
- Put money into an Individual Retirement Account
You can put up to $6,000 a year into an Individual Retirement Account (IRA); you can contribute even more if you are 50 or older. You can also start with much less. IRAs also provide tax advantages. When you open an IRA, you have two options – a traditional IRA or a Roth IRA. The tax treatment of your contributions and withdrawals will depend on which option you select. Also, the after-tax value of your withdrawal will depend on inflation and the type of IRA you choose. IRAs can provide an easy way to save. You can set it up so that an amount is automatically deducted from your checking or savings account and deposited in the IRA.
- Find out about your Social Security benefits
Social Security retirement benefits replace about 40 percent of a median wage earner’s income after retiring. You may be able to estimate your benefit by using the retirement estimator on the Social Security Administration’s Website. For more information, visit their Website or call 1-800-772-1213.
- Ask Questions
While these tips are meant to point you in the right direction, you’ll need more information. Read our publications listed on the back panel. Talk to your employer, your bank, your union, or a financial adviser. Ask questions and make sure you understand the answers. Get practical advice and act now.
- Make sure you’re diversified and investing for growth
It can be tempting to shy away from stocks to reduce risk, but the growth that stocks may provide is still important at this stage of your life. Consider maintaining a sound mix of stocks, bonds, mutual funds and other assets that fits your risk tolerance, investment time horizon and liquidity needs.
Examining your income sources well in advance of retirement gives you time to adjust your plans if necessary.
A well-balanced portfolio may help you weather downturns and potentially generate the kind of income that you will need to cover expenses in a retirement that could last more than three decades.
Use the Merrill Edge Asset Allocator™Footnote 1 to make sure your portfolio is in line with your investment objectives for your retirement plan. Please note that diversification does not ensure a profit or protect against loss in declining markets.
- Downsize your debt
Consider accelerating your mortgage payments so that the loan will be paid off before you retire. To curb new credit card debt, try paying cash for major purchases.
By limiting new debt and reducing existing debt, you can minimize the amount of retirement income that will be spent on interest payments.
For instance, If you pay off a credit card that charges 15% interest, it’s like earning 9.9% on a risk-free investment,” says Nevenka Vrdoljak, Director, Chief Investment Office, Bank of America Merrill Lynch.