With a new year, it is time to once again think of retirement and take some proactive steps in that regard. Are you one to plan early? If so these are ten areas that you may want to focus on in 2015 to ensure, your retirement is as good as it can be. If you have followed my blog, you are aware I honestly believe it is never too early to think about your retirement planning and to save for your golden years. So what are the ten areas that I feel are important for your retirement? Well none are rocket science, and we will now touch on the ten areas I think everyone can focus on to make sure they have prosperous golden years.
The basis for most of us in retirement is Social Security. While this is especially true for people such as my grandparents and parents I do believe it will play a significant role for me as well, I am 43 now. If you are in your 20’s or early 30’s Social Security may not be the same when it comes time for you to retire so while you can count on it do not rely on it being the same that we see today. After all you and everyone else has spent their entire working lives paying into this system, and we all expect to see the benefits at some point. To maximize your benefits make sure you have worked the required years and consider the age at which you will start taking your benefits. With people have later full retirement ages taking early Social Security may not be the best move as we are also living longer so consider your options and if you are like me, and your full retirement age is 67 and you wait until age 70 to begin your benefits, you will receive a 24% raise in your benefits as well.
In retirement, health care costs can be extremely high, so there is Medicare. Unless you are one of the lucky ones who will continue private health insurance in retirement such as a government worker, Medicare will be your primary source of health care insurance. You can sign up for Medicare up to three months prior to your 65th birthday and by doing so you may get lower premiums as compared to waiting. However, if you retire prior to age 65 you will have to make arrangements to buy private coverage until such time that Medicare will take affect and cover you for your health care needs.
A Traditional 401(k) is also a primary component of any retirement plan these days. And with companies contributing a portion of the funds through matching contributions it is important that everyone take advantage of these while they can. Also, there are significant tax advantages to making contributions to a 401(k) as well. Consider someone who is the 25% federal tax bracket, and they can contribute the full $18,000 in 2015 to their plan. That equates to a tax savings of almost $4,500 alone. Workers over tha age of 50 are allowed an additional $6,000 in contributions to their plans.
A Roth 401(k) works the same, but the money is contributed on a pre-tax basis meaning there are no current tax advantages to the account. But provided the account is at least five years old when you retire the proceeds are tax-free upon their withdrawal. These work best for workers who are younger and in lower tax brackets making the benefits better.
An IRA is another tool for your retirement needs. These act similar to a 401(k) but are done on an individual basis and have much lower contribution limits. In 2015, an individual may contribute up to $5,500, and those over the age of 50 can contrinute and additional $1,000. These accounts also can reduce your tax basis provided you meet the income guidelines. Many people have enormous IRA balances because they roll over old 401(k) accounts into these when they change jobs. IRA accounts can be invested in just about any type of investment provided the IRA is set up correctly.
A Roth IRA accounts have the same characteristics as a Roth 401(k) and an IRA meaning they are not tax-advantaged now but are when the funds are withdrawn. The same applies to these when it comes to younger workers and savers as the benefits will most likely be more advantageous upon retirement, and they could be in a higher tax bracket. It is possible to convert a traditional IRA to a Roth IRA provided you pay the proper taxes on the contributions and any gains in the year you make the conversion. Also, like a Traditional IRA, Roth IRA’s have income limitations that must be adhered to in order to be legal.
Everyone needs to have a savings account that they keep their cash that they plan to spend over the short run as well as to keep their emergency funds. No matter what age you are everyone needs to have an emergency fund that is equal to about six months worth of expense. This not only provides you the ability to meet any unexpected needs but also provides you piece of mind when it comes to knowing you are in a liquid position.
If at all possible have a house that is paid in full by the time, you retire. This means no mortgage payments which are the main expense for those of use who are paying on our houses now. In retirement, you do not want this large monthly payment hanging over your head thereby freeing up what could amount to a substantial sum for other needs and wants. Also, if you needed to you would be able to tap into your home’s equity in an emergency or even consider a reverse mortgage if that is something that appeals to you.
Something that many people are now doing that may not have planned for it prior to the 2009 collapse of the economic situation is getting a part-time job. Not only do they get us out of the house and keep us active they provide us the opportunity to interact with others outside of the home. As we get older this becomes imperative and best of all it also provides additional money that allows us to enjoy life more. And it may delay the spending of precious retirement funds until a later date when a part-time job is not an option.
If you are one of the few Americans who will receive a pension, this is just as important as Social Security in some aspects. A pension is like Social Security in the fact we cannot outlive it, and it is additional money that we can utilize for everyday expenses. Most younger workers will not have this aspect in their retirement but some older workers still have these powerful and precious benefits. I know those who work for governments or some older larger companies you may be lucky enough to count this as part of your retirement plans. Otherwise concentrate on the other nine aspects of this blog.
If you have any questions or concerns about this or any other financial topic feel free to contact me. I also am always looking for comments and suggestions on future blogs so if you have either I welcome those as well.
