Preparing for Retirement
Obviously, the best time to prepare for retirement is before you
retire. Experts say that you should contribute 10-15% of your
total income to retirement.
Many companies have 401(k)s or other retirement plans, and
you should take advantage of these, the earlier, the better.
Save as much as you can by contributing and, if your employer
offers a 401(K) match, take it.
Recognize if you leave an employer to go to another job, you
may leave money on the table in employer contributions,
profit-sharing, bonuses, or stock options. If you are not fully
vested, it usually means that the plan has a set period, usually
five years, before you are fully vested. This means you will not
have full ownership of the money invested by your employer
until you are fully vested. Investigate your vesting status before
you make the decision to leave to go to another employer.
Investing and tracking your money yourself is difficult unless
you have a proven knack and track record. Most people don’t.
Therefore, a trusted financial advisor may be your best choice.
This decision will cost you – they don’t work for free. However,
working with a qualified advisor to help with investment
choices for your age and your personal situation could be your
If possible, don’t withdraw from your retirement accounts
unless you are subject to the Required Minimum Distribution,
and then only withdraw the amount you are required to
withdraw by federal law. The exception may be to withdraw
money for house remodeling, medical expenses, a trip you
really want to take, upfront expenses to start a business, or
something else you feel is necessary. Just remember that once
it is gone, it will be very hard to replenish.
The other factor in withdrawing from your 401(k) or IRA is that
you are going to pay taxes on what you withdraw. The taxes are
based on your current income. If you are working and your
income is on the higher side, that is not the time you want to
withdraw from your investments. The whole idea of these
vehicles is to be able to withdraw the money when your income
is down, rather than up.
If you are going to live on your investments, plan out how much
you are going to withdraw and how long the money will last at
your withdrawal rate.
One of the biggest costs you will have is healthcare costs. Many
companies provide a medical allowance or medical insurance. If
you retire before you qualify for Medicare, the cost of
healthcare may be exorbitant. Although your medical expenses
may be a tax deduction, depending on your income, you must
pay the costs upfront first.
Calculate how much the company is paying for your healthcare.
And, remember, because they have a group plan, they are
probably getting a better rate than you can. Then find out how
much the same healthcare would cost you as an individual. I
think you may be surprised.
If you are planning on social security being part of your
retirement income, determine the best age to begin taking
social security. You can take it at age 62, but your monthly
benefit will be much less than if you take it at 70. Balance the
amount of the monthly income to the number of years you
think you will live to determine which avenue you should take.
Other than your mortgage, you want to avoid having debt when
you retire if you can. You will have higher healthcare expenses,
as mentioned above, and will have other expenses you didn’t
plan on which may crop up. While you can continue to use your
mortgage payment as a tax deduction, the benefit may
outweigh having the debt.
With technology options today, you have many ways to make
money without having to work full-time. Everyone can use
some extra income. Most of these income-producing areas will
be considered a business, but with a single-person LLC, for example, you have some legal requirements but can claim the income and expenses on your individual tax return.
If you can combine owning a business and doing something you
love, the income is a bonus. One business many people are now
doing involves consulting. Take an inventory of your skills and
think about how you could turn those skills into revenue.