Are you already preparing for your retirement? Do you understand some of the pitfalls associated with your retirement? Most people figure that if they save that they will be covered in their retirement. That may or may not be the case depending on what it is you are actually doing with your savings. The following are some areas that you may want to think or research some more prior to your retirement.
Be alert and fully understand saving on autopilot. Today many businesses will automatically enroll new employees into the company’s 401(k) plans. This may be anywhere between 3% and 6% of one’s salary. Is that enough for a comfortable retirement? To me personally I doubt that those percentages are sufficient for someone to save and ensure a comfortable retirement. I along with most financial planners suggest saving between 10% and 15% of your salary prior to any company matches that we will look at a little later in this blog. But they key here is when you receive any raises try to live on what you made prior to the raise and increase your percentage that you contribute to your 401(k).
As I mentioned previously you need to contribute 10% to 15% of your salary prior to any company matching. But under no circumstance should you leave free money on the table by not contributing at least the amount that your company will match at a minimum. They key here is to understand how your company matches funds and understand the program that the company operates under. If you have any questions about your company’s plan it is best to talk to your benefits specialist or the company’s plan administrators.
Also it is very important to understand the fees associated with any investment you may have, be that a 401(k) plan, an IRA, or an investment such as a mutual fund or exchange traded fund. All of these investment vehicles do in fact charge some sort of fee and depending on how they are managed the fees may be substantial. Active managed funds and investment vehicles will have higher fees than those that are passively managed. Read the prospectus of any fund you invest in and understand the fee structure prior to investing. 401(k) plans and IRA’s have fees as well so read and understand the “fine” print on these plans. Fees over the life of your investments can eat away substantial portions of your retirement when you consider these fees over 30 to 40 years.
Be leery of retiring too early or not saving enough prior to retirement. As people are living longer it is very important that we save sufficient amounts of capital to last us for our entire retirement. As most people will rely heavily on Social Security it is important to understand how that funding source works for and against you. Most baby boomers will reach full retirement age at 66 and for those born after 1960 your full retirement age will be 67. Wait you say! I want to retire at age 62 when I am eligible for Social Security. Fine provided you understand that 1 you will not be eligible for Medicare so you will need some form of health insurance and 2 your benefits will be reduced about 25%. For those who do reach retirement at age 67 if you wait until you are 70 to retire you will actually increase your benefits 8% a year for a 24% increase in your retirement benefits. If you have any questions about Social Security it is best to contact the Social Security Administration by visiting an office, calling them, or visiting their website.
Those are five areas that you need to consider when you are thinking of retirement. For some of these things you will to contact specific individuals such as your company’s plan administrators or Social Security for more information on your specific needs. But if you have any general questions or need some ideas feel free to contact me and I will do my best to help you any way I can.
