For most people the road to retirement lasts a working lifetime. Along the way you set goals, develop a timeline and engage in savings and investment strategies, all while building a career and providing for your family. To that end here’s a review of a half-dozen ways to ensure a long-lasting retirement.
1. Set Retirement Goals
It all starts with setting goals. Long-term goals define how much you want to have saved in various accounts by the time you retire. These goals have to do with how you want to live in retirement, where you want to live and so on. It’s important to realize that even long-term goals will likely change as time and circumstances warrant.
There are also short-term goals to help you stay on track. Meeting these goals requires that you maximize savings while minimizing taxes. The first two articles in this series, Protecting Your Nest Egg and Retirement Savings: Keep Your Eyes on the Prize, provide tips on setting age-appropriate goals, containing expenses, saving on taxes and checking your progress every step of the way.
2. Pay Attention to Timing
Timing as it relates to retirement tends to revolve around what has long been considered normal retirement age – 65. That said, when you should retire is a highly individual thing. As with financial goals, this too is subject to change. Everything from declining health to unexpected wealth (winning the lottery, for example) could alter your plans. 'When Should I Retire?' Pros and Cons of Different Ages discusses the pros and cons of early retirement (before 65), normal retirement (65 to 70) and late retirement (70 and older). Note that the age for receiving full Social Security is now 66 or 67, depending on when you were born.
One important aspect of timing has to do with the specific age of 59½, the first time (usually) when you can draw on your tax-advantaged retirement savings without incurring a penalty. The Magic Age of 59½ presents the legal, financial and tax implications of drawing down your nest egg before and after age 59½.
3. Know Savings Tools and Strategies
Understanding available employer-based savings plans, including 401(k), 403(b), 457, SIMPLE and SEP plans, provides the foundation for building your entire nest egg. You should know how a health savings account could save you money before and after retirement, along with the importance of having a traditional and/or Roth IRA as part of your overall retirement savings picture.
These tools, together with effective and tax-efficient investment strategies, will provide you with the best insurance you can have when it comes to avoiding financial disaster. The keys are found in Retirement Savings Tools I: Employer Savings Plans, Retirement Savings Tools II: IRAs and Tax-Savvy Investment Strategies for Retirement Accounts.
4. Plan for Extra Retirement Income
Although retirement is often thought of as a time to kick back and relax, most people find themselves as busy as they ever were, though doing different things. For many, staying busy also means earning extra income. Some people buy and manage investment property. Others turn a hobby into a small business. Still others get a part-time job, both for the money and the social contact.
Managing extra income has tax consequences that could affect your retirement account(s). These topics and more are covered in Other Retirement Income Sources and its companion piece, Tax Strategies for Other Income Sources.
5. Don’t Forget Your Partner
Retirement for couples is a joint project. There are timing issues to ensure that you and your partner both gain maximum benefit from Social Security, including those specifically related to spousal benefits. There are personal and emotional issues as well. If, for example, one of you keeps working while the other retires, how will household management change? On the other hand, the huge life changes of retiring at the very same time can also be unnecessarily stressful for a relationship.
Retirement in a partnership can be complicated, which makes Retirement Strategies and Your Marriage must reading for you and your spouse. And in the event of a divorce, you may be subject to a qualified domestic relations order (QDRO), which could require you to split your pension or retirement savings with your ex-spouse.
6. Mind the End Game
For most people, age 50 is the beginning of the retirement end game. Ideally, you will start by fortifying your nest egg with catch-up contributions. You will also need to review your investment mix more frequently to make sure you have the right combination of securities to mitigate risk while ensuring sufficient growth.
In the last year or two before you retire, you will need to review both healthcare and home-repair needs and see that they are completed while there’s still a salary (and, one hopes, employer-sponsored health insurance) coming in. This may also be a time to make charitable contributions that will be more beneficial tax-wise before your income declines. Finally, you will need to pay attention to the early years of retirement, before required minimum distributions kick in and your taxable income potentially sees an increase. For more on this important stage of life, see Financial Strategies as You Approach Retirement, The Last Year Before You Retire and The Tax-Savvy Window: Ages 66 (or 67) – 70.
Having done all this, you should be able to head into the next stage of your life well-prepared and well-funded. Congratulations!