1. Set Retirement Goals
It all starts with setting goals. Long-term goals define how much you want to have saved in various accounts by the time you retire. These goals have to do with how you want to live in retirement, where you want to live, and so on. It’s important to realize that even long-term goals will likely change as time and circumstances warrant.
KEY TAKEAWAYS
- Ensuring you are financially secure throughout retirement starts with setting financial and lifestyle goals, as well as what age you would like to retire.
- Make sure to understand the different retirement plans available to you, including how they are taxed.
- If you plan to work during retirement be aware of the potential tax consequences.
- Also plan with your spouse in mind, as well as exes if you are divorced—you may be entitled to some of their retirement plan savings or vice versa.
- Monitor your progress every step of the way and be aware that long-term goals can change over time.
2. Pay Attention to Timing
Timing as it relates to retirement tends to revolve around what has long been considered normal retirement age—the upper 60s. That said, when you should retire is a highly individual thing.
As with financial goals, this is also subject to change. Everything from declining health to unexpected wealth (winning the lottery, for example) could alter your plans.
Important: The age for receiving full Social Security retirement benefits is now 66 or 67, depending on when you were born—but waiting until age 70 increases them by 8% each year you delay taking them.
One important aspect of timing has to do with the specific age of 59½, the first time (usually) when you can draw on your tax-advantaged retirement savings without incurring a penalty. There are financial and tax implications of drawing down your nest egg before and after age 59½ to consider.
If you don't plan to retire early or don't need to tap your retirement savings at 59½, it's best to let your nest egg grow and to continue contributing to it. Keep in mind that required minimum distributions (RMDs) don't kick in until you are 70½ for most retirement accounts.
3. Understand Available Retirement Savings Options
Understanding available employer-sponsored savings plans, including 401(k), 403(b), 457, SIMPLE IRA and SEP plans, provides the foundation for building your entire nest egg. You should also know the importance of having a traditional and/or Roth IRA as part of your overall retirement savings picture.
In addition, you should learn how a Health Savings Account (HSA) could save you money before and after retirement.
These retirement savings tools, together with effective and tax-efficient investment strategies, will provide you with the best insurance you can have when it comes to avoiding financial disaster.
We will share the remaining 3 ways in next blogpost.