Seven Retirement Basics

Everyone wants to retire, and everyone wants to have enough money to live comfortably when they finally leave the corporate world behind. How do you know if you’ve saved enough? How do you save more? Here are seven retirement basics to help you plan.

First, you need to know how much money you will need. For this you need a plan. How do you intend to live in retirement? Do you want to retire to a simple existence in your current home? Do you want to move to the beach? Don’t forget to factor in your expected health care costs and lifespan. All of these will determine how much money you will need.

Secondly, determine how much income you will receive from social security and any pensions you may have coming. The difference will have to be covered out of your retirement savings.

Third, set up a 401(k) or an IRA if you haven’t already done so. Both of these are excellent vehicles to help you save for retirement. Both have significant tax advantages. In a 401(k) or traditional IRA, taxes are deferred on contributions. You will not pay taxes until the money is taken out. In addition, many employers match workers contributions into a 401(k), up to a certain amount. IRAs offer more options for tax-free withdrawals.

Fourth, decide how to invest the money in your accounts. Most advisors recommend you keep the majority in stocks if you are 20 or more years from retirement, and then gradually shift most of your money into bonds as you near retirement age. Keeping all of your money in one kind of investment also has it risks, however, so the best plan is to keep your portfolio at least somewhat diversified.
Fifth, don’t keep all of your savings in your retirement accounts. If all of your money is tied up in your 401(k) or IRA this increases the likelihood that you will have to break into the account –thus paying taxes and penalties –should there be an emergency in your life, such as a job loss or a major medical bill.

Sixth, eliminate as much debt as possible before you retire. This will allow you to live on less income and use your income for other things, like that long delayed trip to Jamaica.
Finally, consider other ways to boot your income or reduce your expenses when you hit retirement. Consider moving to a less-expensive area or taking on a part-time job.

Finally, consider other ways to boot your income or reduce your expenses when you hit retirement. Consider moving to a less-expensive area or taking on a part-time job.