One of the biggest fears people have when planning for their retirement is running out of money once they get there. Even those who have saved diligently for most of their lives worry whether or not they will be able to live out a comfortable retirement.
According to a recent Bloomberg survey, investors believe they will need at least $3 million in order to retire comfortably. But a comfortable retirement depends on more than just the amount of dollars you have saved. Don’t panic just yet. Here are four steps you can take now to help you enjoy your golden years.
1. Save Early and Often.
Retirement may seem far off if you are just starting your career, but it is never too early to start thinking about and preparing for your financial future. Establishing good money-saving habits early in life will make it easier for you to save throughout your career. Many retirees who are living out a comfortable retirement owe their success to those good early saving habits. Because you are giving yourself more time to save by starting early, you can put away less at a time. Meaning, you don’t always have to choose between saving for retirement and doing something fun with your money.
If you're not sure where to start, a financial adviser can help you map out a plan, which can make the difference between just scraping by and living out a comfortable retirement.
Sponsored Content
2. Have a Tax Plan.
One of the most important steps on the road to retirement is having a tax plan. This goes beyond simply filing your taxes every year. The further ahead you can plan for your tax situation, the better chance you have at reducing your tax burden.
When it comes to retirement accounts, there are tax-exempt accounts like Roth IRAs and Roth 401(k)s and tax-deferred accounts like 401(k)s or traditional IRAs. Both kinds of accounts are helpful in saving for your retirement. The major difference between the two occurs when taxes are taken out. Those who are just starting out in their careers often rely mostly on tax deferred accounts. These accounts provide an upfront tax break on your initial contributions. The taxes are delayed, or deferred, until you begin taking money out of the account in retirement.
Tax-exempt accounts are the opposite. Rather than paying taxes when you withdraw money, you are instead required to pay taxes on your contributions up front. The contributions you put into these accounts will grow tax-free over time and you will be able to withdraw the money tax-free in retirement. These future tax benefits can be a huge relief for retirees, many of whom will be living on a reduced or fixed income.
Remember to take into account required minimum distributions, or RMDs, which are forced distributions from your tax-deferred accounts like a traditional IRA or 401(k). You must start taking RMDs by April 1 of the year after you turn 73. So, if you celebrate your 73rd birthday in August of this year, then you must take the RMDs by April 1, 2024. Every year after, you must take them by Dec. 31.
Sponsored Content
3. Assess Your Risk.
Consider the risks you are taking with your investments. For example, if you start the year with $1.25 million in your retirement accounts, it could look a lot different just months later depending on how much risk you're taking on. Ask yourself, what is my comfort level?
We sit down with clients and ask them what their risk number is. Between 1 and 100, with 100 being the most aggressive you can be, where do you fall? If you tell me you are a 40, I would consider you pretty conservative. Do your current investments reflect that risk?
Many people don’t realize that they are invested in a way that is much more aggressive than they are comfortable with. You won’t understand what your risk looks like until you have a plan in place. From there, you can plan out the risk that you are comfortable with.
Sponsored Content
4. Be Prepared to Shift to Spending.
Once you enter retirement, you transition from being a saver to a spender, and while many people can spend their entire lives being a great saver, they might not know how to handle being a spender in their golden years.
But it is critical you don’t overspend. Spending too much money or racking up credit card debt when you’re still working is bad enough, but at least you have a steady income every month that can help pay it off. In retirement, your income options are much more restricted. Overspending can easily result in running out of money before your retirement ends, which may force you to rejoin the workforce.
Bottom line, the sooner you get started, the better. Planning for retirement can be intimidating and stressful but it doesn’t have to be. Instead of panicking, be proactive and create a plan for your retirement. Working with a financial adviser can help you come up with the right plan for these life-altering decisions.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
Sponsored Content
-
I missed the 2-Year IRMAA Rule. Now, my Medicare costs are skyrocketing. What are my options?A spike in income could result in costly IRMAA charges on your Medicare premiums. We ask financial planning experts for advice.
-
How to Build Your Financial Legacy Three Piggy Banks at a TimeA wealth adviser shares a childhood saving technique that taught him lessons of stewardship, generosity and responsibility and helped him answer the question we all need to answer to define our lives by impact rather than greed: 'What is this all for?'
-
How to Build Your Financial Legacy Three Piggy Banks at a Time
A wealth adviser shares a childhood saving technique that taught him lessons of stewardship, generosity and responsibility and helped him answer the question we all need to answer to define our lives by impact rather than greed: 'What is this all for?'
-
Which of These Four Withdrawal Strategies Is Right for You?Your retirement savings may need to last 30 years or more, so don't pick a withdrawal strategy without considering all the options. Here are four to explore.
-
DST Exit Strategies: An Expert Guide to What Happens When the Trust SellsUnderstanding the endgame: How Delaware statutory trust dispositions work, what investors can expect and why the exit is probably more important than the entrance.
-
Think Selling Your Home 'As Is' Means You'll Have No Worries? Think AgainThere are significant risks and legal obligations involved in selling a home 'as is' and by yourself, without a real estate agent.
-
What the OBBB Means for Social Security Taxes and Your Retirement: A Wealth Adviser's GuideFor Americans in lower- and middle-income tax brackets, the enhanced deduction for older people reduces taxable income, shielding most of their Social Security benefits from being taxed.
-
Financial Planner vs Investment Manager: Who's the Better Value for You?When markets are shaky, who do you trust with your money? A recent study provides useful insights into the value that different financial professionals offer.
-
I'm a Financial Adviser: This Is How You Could Be Leaving Six Figures in Social Security on the TableClaiming Social Security is about more than filing paperwork and expecting a check. When you do it and how you do it have huge financial implications that last the rest of your life.
-
The Big Pause: Why Are So Many Americans Afraid to Retire?While new research sheds light on Americans' growing reluctance to quit work in later life, can anything be done to help those with the retirement jitters?
