Regardless of age, planning for retirement is an important component of any long-term financial strategy. Through the benefits of modern medicine, people are commonly living
well into their 80s and beyond. Coupled with the continuing uncertainty surrounding social security benefits, careful planning is vital to ensure adequate financial resources are available throughout retirement.
At its most basic, retirement planning revolves around setting aside a certain amount of money that will grow through savings or investments over time. These funds will subsequently
be withdrawn in increments at a later age when the person is no longer working. Complete financial independence is usually the goal of the plan as people define those activities they
would like to participate in after retirement.
The Successful Retirement Plan
When considering retirement planning, one should include several critical elements that will help grow their retirement savings more quickly.
- Save Early: There are numerous online financial calculators that confirm the value of starting retirement savings at an early age. As the gains accumulate, additional interest is earned through the benefit of compounding. In essence, this converts small contributions into large proceeds with the benefit of time.
- Start a Retirement Account: An individual IRA or a 401k offered through an employer provides substantial tax benefits to the account holder. Since contributions enter the account before they are taxed, interest, dividends, and gains grow more rapidly. Additionally, any accumulated gains in the account grow tax-free until they are withdrawn anytime after 59 1/2. Establishing an IRA or 401K can be the single most important vehicle for ensuring a comfortable retirement.
- Asset Allocation: It is important to understand the three major sources of investment income. Stocks, bonds, and regular savings all have their advantages, and a healthy portfolio will include elements of all three. Stocks can offer the greatest appreciation, but they are volatile. Bonds have higher yields than CD’s and lower risk than stocks, but they are very sensitive to inflation and sometimes illiquid. Regular savings and CD’s are very secure, but they often have a yield that is lower than inflation.
While some may be qualified to engage in self-directed retirement planning, one can also consult with a member service representative at the Credit Union for assistance.
- Leave Retirement Accounts Alone: Although it is tempting, tapping into a retirement account can result in tax consequences and significant penalties. Retirement funds should only be accessed for medical emergencies and educational expenses when all other options are exhausted.
Most importantly, retirement objectives must be realistic. For some, this may include part-time work during retirement or relocation to a state with lower expenses. Whatever the individual circumstances may be, the defined goals must be attainable through the available retirement funds.