Retirement

Happy Elderly Couple

Top 4 Ways to Plan for Retirement

Written by: Annette Harris, July 11, 2021

Your priorities of planning for retirement may change as you age. When planning for retirement, four things to consider are your income, your home, planning for the future, and managing debt. Balancing your income, debt, and life's unexpected challenges as you age is essential to preparing for a financially secure retirement. Read on for four things you can do to prepare for retirement.


Know Your Retirement Number


Knowing how much income you will need for retirement can help you keep track of your goal. When calculating your retirement number, consider the age you claim social security, any retirement contributions, your current salary, and the age that you want to retire. In a recent MoneyRates article, I discussed that "To maintain a resemblance of your current financial situation, plan to have 80% of your current annual income. If you will be retired for 30 years and earn $80,000 annually, your retirement savings goal would be $1,920,000."

Calculate your retirement number on NerdWallet.


Your Home


Your home and whether or not you have a mortgage is a significant factor in making retirement decisions. When preparing for retirement, you should consider will your mortgage be paid off or if you are interested in a reverse mortgage. Reverse mortgages are confusing and risky, so considering all of your options is essential. Whatever you decide, your home and the equity you have built over the years can be a financial safety net. Video: Reverse Mortgages


Planning for the Future


One of the financial concerns of retired people nearing retirement is medical care. As we age, we tend to require more medical attention. To prepare for medical concerns, evaluate the medical plans offered by your employer after retirement. Preparing should also include considering long-term care insurance. Many people may need long-term care insurance, but those who are more likely to need it are individuals with chronic illness or disability, older persons, women, and people living alone.


Managing Debt


Planning for retirement at an early age enables you to keep your retirement plans on track. Paying off your mortgage early, carefully considering refinancing opportunities, and estimating your income and expenses throughout your life can keep your debt in check. Completing annual checkups on your retirement savings and income can prepare you for a financially secure retirement.

Generational Wealth Planning

Written by: Annette Harris, May 28, 2021

When saving for retirement, each generation has challenges and advantages. Challenges young adults face are student loan debt, lower-income levels, childcare expenses, homeownership expenses, and a lack of financial knowledge. These factors can decrease the funds available to set aside for retirement. These expenses are also current and need to be paid immediately, which leads to retirement savings being less of a priority. Generation X are mid-life individuals who are nearing retirement in a few short years. To eliminate income inequity in retirement, it's important to start planning now.

Millennials

Younger adults should focus on increasing their financial knowledge to secure their financial future. It’s common for younger adults to graduate college, gain employment, and not understand the benefits offered by their employer. Inquiring about the retirement plan options, evaluating plan documents, and the risks and benefits of the funds within the plan should be a top priority. Understanding these factors can help make sure that you are educated on the benefits available to you. Finally, taking advantage of the employer matching options at the beginning of your career can help guide you in building a secure retirement. The matching contributions in retirement plans are free money and beneficial to growing a retirement fund.

See my contribution to Jami Farkas’ article Top 10 Things Every College Grad Should Know About Money in Yahoo News.

Generation X

Individuals in their 40s are nearing the age of retirement in a few short years. During this time, you should attempt to boost your retirement savings. You can accomplish this by maximizing the retirement contributions offered by your employer. If you receive an annual pay increase, adding another percentage to your contributions could be used to make sure you build a financially secure retirement. The most significant factor is to take advantage of the employer’s matching contributions. If your employer matches the first six percent of retirement contributions, take advantage of the free money offered to you.


Video: Saving for retirement: Tips to eliminate retirement income inequity


Mortgage Elimination

Individuals in their 40s should focus on debt elimination. Most people in their 40s have children who are no longer in daycare and tend to have steady income increases. If either of these is the case, you can start focusing on reducing or eliminating their mortgage payment.

Here are some tips to make this happen:

1. Evaluate your monthly income and expenses.

2. Determine where a surplus can be applied to the principal of your mortgage.

3. Pay an extra dollar amount to the principal of your mortgage.

These steps will allow you to cut your monthly interest payment and knock years off a 30-year mortgage.

See my contribution to Mikaela Sullivan’s article Money Advice for Your 40s in Accredited Debt Relief.

Millennials & Retirement

Written by: Annette Harris, May 15, 2021

Saving for retirement may not seem like a priority when you are young. When college students graduate, they tend to be ready to conquer the world, but are they ready? Not possessing adequate financial knowledge about preparing for retirement after college can lead to a failure to invest in a secure retirement plan. Before starting a job after college, millennials should educate themselves on the barriers to retirement and ways to be financially ready to retire.


Learn from your Mistakes


Most millennials in their 30’s have had adequate time to prepare and learn from the mistakes of not investing in their retirement early. Not investing early has caused some millennials in their 30’s to have to catch up and recover from not investing in their 20’s but will allow them to have a significant financial cushion in place at retirement age. However, 20% of younger millennials in their 20’s may not have adequate funds for retirement. Younger millennials want to chart their path in life. They may not follow the traditional method of staying in one profession throughout their lifetime and do not seem to value loyalty to a specific employer, nor do they want to commit to one career for the long term. This method of professional employment may not enable them to become “vested” into an organization’s retirement plan or increase their income level consistently due to “job hopping” and constant career changes.


See: Millennials May not be Retiring Soon—But They are Already Planning for it


Barriers to Retirement


One of the most significant barriers preventing millennials from being financially ready to retire is employers shifting from pension plans to defined contribution plans or 401(k)’s. The shift to defined contribution and 401(k) plans compels an individual to remain with a company long enough to become vested in a retirement plan. Ultimately, not contributing to a voluntary retirement plan offered by employers is like throwing money down the proverbial drain and can lead to reduced funding availability in an individual’s retirement years.


Video Link: How much are you going to need for retirement?


Steps to Prepare for Retirement


To be financially ready to retire millennials should take the following steps:


  • Educate themselves on the retirement plan offered by their employer (vesting, funds, and fees).

  • Invest a percentage that takes advantage of the employer contribution match.

  • If you are self-employed, seek out a retirement plan contribution option.

  • Evaluate their monthly income and expenses to determine where to find more cost savings to invest in retirement.


See my contributions to Jami Farkas’ Yahoo Finance Article: Top 10 Things Every College Grad Should Know About Money


Preparing for your retirement in your 20’s is the best way to maximize the benefits offered by your employer. Take advantage of the offerings as soon as possible and continue to increase your contributions as your financial situation changes. It’s never too late to invest in yourself.

How to Become a 401(k) Millionaire

Written by: Annette Harris, April 15, 2021

When saving for retirement, it's not always easy to know where to start. The myriad of retirement plans available can be confusing. If you don't have a representative who can guide you and explain what funds and fees are within the retirement plan, you may give up and walk away. But wait! When you walk away, you are giving away free money and delaying your savings for retirement.


So, how do you start saving for retirement? You start saving for retirement by investing in your employer's plan as soon as you are eligible. Before becoming eligible, do research and educate yourself on the funds within the plan and the fees associated with that plan. Most employers will put your retirement savings into a Target Retirement Fund if you do not make an election. This could be the most secure option for you until you can research the available funds. However, don't stop there when determining the best return on investment for your retirement fund.

Educate Yourself

Here are some things that you can do to educate yourself on your investment options:

  • Talk to a financial advisor.

  • Decide your risk tolerance (stocks versus bonds).

  • Call the funding organization or go to their website to compare the fund options.

After determining your risk tolerance and selecting the funds you want to invest your retirement savings in, INVEST in your future. The most crucial step is to act as soon as possible. Find out how Fritz Gilbert did it.

Investing Early

Investing early will give you the best return on investment for when you reach retirement age. If your employer offers a matching contribution, you reap the benefits of the free money received by the plan. Yes, I said free. When employers offer matching contributions to your retirement plan, they give you free money to invest in yourself. You also reduce your tax rate from year to year because your money is held in a tax-deferred savings plan. Now, how bad could a lower tax rate be? Find out more about reducing your taxable income from the Financial Industry Regulatory Authority.

Video: How to become a 401(k) Millionaire

Continued Growth

Now that your retirement fund is created, how do you continue to grow your retirement fund? You can continue to grow your retirement fund by increasing your retirement contribution percentage or dollar amount whenever you receive a pay increase. Even increasing your contributions by 1% annually can add to your long-term savings, and you may not notice the difference when receiving a pay increase. Also, as you pay off debt and find that you have additional funds available in your bank account, think about increasing your retirement contributions. The return on investment you receive from your retirement fund will exceed the interest received from diverting the funds into a savings account.

Your retirement plan could contain $1,040,106* at the age of 65 if you start investing at 20 with a starting annual salary of $30,000. Yes, you can become a 401(k) millionaire! Calculate your options here at Bankrate.com.

This was calculated with a contribution of $1,800 per year and a current 401(k) balance of $0, 2% annual salary increase, and a 7% annual rate of return. The plan has you contributing 6% of your annual salary up to the IRS annual maximum of $18,000 and an employer match of 50% of the 6% contribution.* Bankrate.com