Re-evaluating Your Retirement Goals
“How much do I need to save for retirement?” That’s a question that you most likely have asked yourself many times. And you may find that your answer has changed from when you first started thinking about how you’d like to spend your retirement years.
If you’re in or near retirement, it’s probably a good idea to re-evaluate your retirement goals periodically with your financial advisor to ensure that your retirement will be as comfortable and stress-free as possible.
Some questions to keep in mind include:
• At what age do you want to retire?
• What kind of lifestyle do you hope to have?
• Will you want to travel?
• What sort of hobbies will you pursue, such as golf, fishing, etc.?
As a general guideline, most experts suggest that you need 60 to 90 percent of your pre-retirement income just to maintain your current lifestyle. Keep in mind that your annual expenses in retirement may fluctuate. If you’re paying a mortgage now, your expenses will drop if you pay off your home by the time you retire. Other expenses, such as healthcare, may increase in your later retirement.
Experts suggest a mix of investments and savings programs to round out your portfolio, typically including IRAs, 401(k)s and pensions offered by employers, and bank certificates of deposit (CDs). Talk to your advisor about your personal situation, and discuss with him/her which of these various ways to save for your retirement may be best suited for your goals:
401(k)s are powerful savings tools. Contributions come out of your salary as pre-tax contributions, reducing your current taxable income and any investment earnings grow tax deferred until withdrawn. Some 401(k) plans also allow employees to make after-tax ‘Roth’ contributions. In addition, employer-sponsored plans often offer matching contributions, and may be your best option when it comes to saving for retirement.
IRAs feature tax-deferred growth of earnings. If you’re eligible, traditional IRAs may enable you to lower your current taxable income through deductible contributions. Withdrawals, however, are taxable as ordinary income (except to the extent you’ve made nondeductible contributions).
Roth IRAs allow you to make completely tax-free withdrawals under certain conditions, but don’t permit tax-deductible contributions. With both types, you can typically choose from a wide range of investments to fund your IRA.
CDs offer steady growth and can be laddered in various terms so that they mature at different times. Some allow funds to be added and an increase in rate during their term.
Annuities are generally funded with after-tax dollars, but their earnings grow tax-deferred (you pay tax on the portion if distributions that represents earnings). There is also no annual limit on contributions to an annuity.
Depending on how close you are to retirement, you may also want to include a variety of stocks and bonds (individual or in mutual funds) and real estate. If you're in your 20s or 30s, and depending on your tolerance for risk, you probably can afford to be moderately aggressive with your investments. If you're in your early 60s and close to retirement, you'll want to be conservative with more of your money in annuities, CDs and bonds, and less in stocks or stock mutual funds.
Plan a strategy for when and how to tap your retirement funds. It's important to know when you are eligible to withdraw from retirement savings and collect Social Security benefits, how much you can withdraw and collect, and the tax implications. This kind of information can help you make smart decisions about such matters as where to put most of your retirement savings and when you can expect to retire.
Give your retirement accounts a periodic checkup once or twice a year. Perhaps you'll want to re-evaluate your portfolio because of market fluctuations; your holdings may become too heavy or too light. Or you may decide to increase your contributions if the accounts aren't growing as you expected.
Your retirement goals and your expected retirement age may change over time. So how do you help guarantee that you don’t run out of money? Be sure to revisit your retirement-planning strategy periodically with your financial advisor to ensure you can maintain your standard of living during your golden years.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or products may be appropriate for you, consult with your financial advisor.