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Retirement Planning: Tools for Creating a Blueprint for Your Ideal Life

Friday, January 25, 2019Friday, January 25, 2019 admin

2. Create the Best Retirement Plan Possible

Earn tax-free savings for retirement, buying your first home, or going back to school. Get on track with our savings and investment solutions. See all our solutions. Getting Ready to Retire. What does your dream retirement look like? Identify your goals and plans First, you need to figure out what your ideal retirement would look like.

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What lifestyle are you aiming for? What interests would you like to pursue? How would you like to spend your time? Are you interested in working after retirement? Calculate your retirement needs by answering a few quick questions. Think about a time frame With retirement starting as early as 55, and life expectancies going up, your retirement could last 40 years or more! Set aside personal savings The income stemming from a government pension is rarely enough to live comfortably on.

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Sound Mind Investing offers two primary strategies to follow: Just-the-Basics , and Upgrading. Both are founded on core principles that should be a part of any investing plan, and each can be adapted to your situation. Once you get your long-term strategy up and running, continue to follow it no matter what the markets may be doing. In other words, don't let current events and the emotions surrounding them interrupt your monthly contributions.

Start a college savings account. If you already have a child, the clock is ticking on their education saving. There is definitely a right way and a wrong way to do this, so educate yourself. It's easier than it seems: Avoid the old tools you've heard about: EE bonds, custodial accounts, and so on. And don't buy into the idea that you need to save a gazillion dollars for college either. Worst case, there will likely be loans or part-time jobs available to make sure Junior can still go to college. Don't be paralyzed by the huge numbers you read about; just start saving what you can.

As bittersweet as having the kids leave home may be, for most couples it marks a financial turning point from peak spending years to peak saving years. Coinciding with the decline in child-related expenses are the highest earning years for most workers, and in some rare cases, paying off the mortgage. At any rate, there's probably more surplus money available now than ever before, and it's a good thing.

The day-to-day expenses of child-rearing have likely left you feeling a little behind regarding your retirement plan. It's catch-up time now. Your priority list includes:. Revise your budget to reflect your new level of income and expenses. This budget revision should be an annual event anyway, but I'll include it in case you haven't adjusted your budget in a while. Take a new look at your short and medium term goals as well.

It's getting down to crunch time, so if you're serious about meeting those goals, you don't have as much of a time cushion as you once did.

Use that as motivation rather than letting it discourage you. Take a financial inventory of your household. What debt do you have outstanding? What needs are coming up—additional school payments, cars that need replacing, home repairs you've put off?

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At this stage of life, debt should be pared back to bare minimums. If you haven't already done so, pay off those credit card balances, car loans, and other consumer debts. You likely have the cash flow now that you can eliminate or reduce interest expense on big-ticket items, like car purchases, through advance planning and saving.

If it's not there yet, build your emergency saving account balance up to where it should be. Get realistic estimates of how much money you'll need to retire. SMI's Retirement Planning Worksheet Calculator can help you with this task, as can many of the other good calculators available at other financial websites.

Having specific figures in mind will help motivate you if you need to start saving more, or potentially keep you off the austerity budget if you're doing better than you thought. Review your investing strategy. For many people, this will have already happened years ago as a result of managing retirement plan money at work or IRAs they've established. But how you divide your money between stocks and bonds which affects your risk level changes as you move closer to retirement, so it's important to make sure your allocations are still appropriate.

See point 5 for young couples for more on this. Maximize your retirement plan at work.

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Your k or other retirement plan at work probably represents your best opportunity to quickly save large amounts for retirement. The tax advantages of such an account, which usually include pre-tax contributions, coupled with employer matching or other contributions, make it tough to beat. This isn't true in every case though, so investigate the details of your plan, as well as the investment options offered within it.

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Take advantage of IRA opportunities. But that doesn't mean it's not worth doing so anyway. Or you may qualify for a Roth IRA, which can provide years of valuable tax-free growth. Remember, your time horizon isn't just until you retire, it's through your retirement, which these days often extends years. So if you've maxed out your retirement plans at work, definitely consider an IRA. The big day has finally arrived! But with the freedom from your job comes the unsettling loss of that familiar friend: That loss of steady income makes many retirees feel like they're at the mercy of the financial markets to a much greater extent than they prefer.

Don't panic, you can have peace of mind despite this adjustment. But it's definitely time to make sure your personal financial plan reflects these major changes. Here are the key points:. Decide whether to take your company retirement plan money in a lump sum or an annuity. This is an extremely important decision and should be made with great care. If you'll be making this decision soon, schedule an appointment with a CPA or financial planner to talk about which is a better option for you.

Re-create your budget to reflect the realities of your retirement income.

Create a Plan for a Meaningful Retirement

This doesn't just mean the changing amounts ; it means the change in the timing of these payments as well. Match your living expenses to the amount and timing of your income, obviously remembering to include things such as social security income, pension benefits you receive, and so on. Determine your strategy for withdrawing money from your retirement plans. This is a major decision, one you should make with a firm grasp of your income needs from your newly revised budget.

Let's review a few popular options:. Consider the implications of which accounts you withdraw from when. Traditional IRAs, including IRAs you may have rolled over from your company retirement plan, have mandatory distribution rules that require you to start withdrawing from these accounts at age Roth IRAs, by contrast, have no mandatory distribution rules, and in fact, get favorable treatment should you die and leave them to your heirs. While this decision requires some individualized number crunching and thought, taking money out of your traditional IRAs rather than your Roth IRAs early in retirement will generally leave you with more flexibility in your later years than vice versa due to the smaller mandatory distributions you'll incur.

An even more aggressive way to leverage this difference in the IRA rules is to consider delaying the start of your Social Security benefits initially when you retire. You'll have an extremely low taxable income as a result, which you can use to your advantage by converting chunks of your Traditional IRA into a Roth at rock-bottom tax rates. Having more Roth and less Traditional IRA assets will increase the flexibility of your future withdrawals, perhaps lower the overall tax rate paid on those IRA assets, and boost the amount of your monthly Social Security payments once they do begin.

This sort of maneuver is complex enough that it's likely wise to enlist the help of a good CPA to evaluate its effectiveness in your specific situation. Reconsider your asset allocation and risk threshold. Retirement is a time to reduce risk, taking only as much as is necessary to meet your financial needs.

Even if you've been an "all stocks, all the time" investor throughout your life, it's foolish to take that added risk if you can live comfortably on the income provided from less aggressive investments. So look closely at what your specific income needs are, and throttle down your risk if you're able.

The new SMI Managed Volatility Fund may be a useful tool for the stock allocation of those at this stage, since it attempts to offer some downside protection while still pursuing the Upgrading strategy. I've merely touched on some of the most important aspects of creating your personal financial plan: But all of this information is explained in detail in our bonus reports for new readers: While these lists aren't comprehensive, they do highlight key items to address in your personal financial plan at each stage of life.

Ultimately, your financial priorities and plan of attack can only be decided by one person, and that's you.