11/1/2013 7:30 PM ET|
How to prepare your 'retirement landing'
When you're getting ready to touch down in retirement, be sure you're prepared with these eight smart financial steps.
You know that feeling when you've been flying all day and you're almost to your vacation destination?
You're tired. You've changed time zones, and everything seems just a little off. As your plane is on approach, you know you should organize everything, but the thought is exhausting. You need to collect your trash, assemble your scattered belongings, and maybe dig out some gum.
You should be excited because your vacation is about to get fully underway, but wrestling with the logistics leaves you weary and nervous -- you know it's going to be great but you can't help wondering what you've forgotten.
That feeling can be similar when you're "on approach" to retirement. Here are eight tips to help you work out those pesky logistics so that you'll be in a position to really enjoy stepping into those golden years:
1. Put your budget on approach to retirement. Gradually reduce your monthly budget over several years until you reach the level of spending that you've budgeted for your retirement years. You'll avoid retirement sticker shock, plus you should be able to contribute more money to your 401(k) – because that budget surplus has to go someplace.
2. Take advantage of catch-up contributions, which help you to make a final push toward your retirement goals. Beginning the calendar year you turn 50, the IRS increases your 401(k) contribution limits. For example, people age 50 or greater in 2013 can contribute an extra $5,500 on top of the standard $17,500 limit. (Other retirement plans have different limits.)
3. Stay invested in equities. Don't make overly aggressive moves with your retirement savings, but do remain invested across several different types of investments. Investing as you approach retirement involves a balancing act -- balancing the need to protect your savings with the need to increase your savings to outpace inflation.
4. Decide what you're going to do with your retirement dollars when you initially retire, and have everything ready to go when the day arrives. You don't want to retire and find yourself without income for three months because you submitted your paperwork late. Options to consider include leaving your money in your plan (if allowed) and taking 401(k) distributions, or rolling your money to an IRA. I generally advise against taking a lump-sum cash distribution of all your savings, however, as you're responsible for ordinary income taxes on all pre-tax contributions and earnings and you could bump yourself up several tax brackets.
5. If you have any doubts about whether your savings will last through retirement, work a little longer. Financially, it's a win-win-win scenario. Another year of work gives you another chance to max out your 401(k) contributions and gives your investments one more year to grow. Plus it's one less year you'll be drawing down your retirement savings.
6. Get long-term care insurance. Long-term care isn't covered by health insurance, so it can deplete a retirement nest egg at an alarming rate. Most people will be in a better position to receive more favorable underwriting on long-term care insurance during the approach to retirement, instead of waiting until after you retire.
7. Get life insurance. If you want to leave a legacy for your family, life insurance can be a good way to do so. In most cases, as long as you've taken care to designate beneficiaries appropriately, the death benefit will be tax-free. As with long-term care insurance, you're likely to receive better underwriting during the approach to retirement than you will post-retirement.
8. Find a financial adviser you trust. Don't work with someone who pushes you toward products that make you uncomfortable. You want an individual who will thoughtfully help you make tough financial decisions and manage your investments.
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I have been planning for my retirement quite a while. Most of the tips that are on this list I have been putting to practical use for quite a number of years. It is a great idea to take advantage of fully funding your retirement plans and taking advantage of the catch-up contributions. If you are a younger investor and your company has a 401K match in your plan you should at least invest enough money in that plan to take advantage of the employer match.
One of the tips that should be on this list is to pay down your debt before you retire. Another tip would be to start investing in your future and retirement as early as possible. You can start small and purchase some stock that has a dividend reinvestment plan (DRIP). Invest what you can and every time you find yourself with more funds invest that money too. It is amazing what the power of compounding can do. If invest a few dollars today and it can grow to thousands in forty years.
The earlier you start planning the much more likely you will have a comfortably retirement and a safe financial landing.
The number one thing to do before is look at what your Democrats are doing and plan to do.
Under their vision your retirement will be spent as third world folks now do. As has been
said, "you'll be out picken' s__t with the chickens.
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