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Now more than ever before, saving for retirement has become extremely important. With the average life expectancy in the U.S. increasing and a large population of Baby Boomers currently approaching retirement age, Social Security may not be enough to support you through your retirement years. Undoubtedly, planning for retirement will be one of the most important decisions you will ever make. Regardless of your age or how near or far down the road retirement is for you, now is the time to start building your nest egg for a comfortable living throughout your retirement.
Who should plan?Although retirement planning is a hot topic, the truth of the matter is that few people know when or how to get started. You may ask yourself, "Do I need to plan for retirement?", "When do I want to retire?", "How much money will I need to have saved to maintain my current lifestyle?", and "Where do I begin?"
We all have our own idea of what we want our future to be. For some of us our retirement years may consist of travel and leisure, and for others it may consist of spending quality time with family and friends. And there are some who wish to continue working past their retirement age. Whatever the goal for your future, it is important to have a solid plan in place that will ensure your financial security during your later years.
Despite how we paint our retirement picture, none of us can predict what the future holds for us. That being said, it is important that you factor in costly situations, such as extra healthcare expenses due to illness. Plus, you'll need to take into consideration that after retirement you may not have access to your employer's health plan.
Successful planning is essential for financial security and a comfortable retirement.Isn't Social Security enough?Although Social Security is the starting point to fund your retirement, it is only a foundation on which to build your own retirement plan. In fact, the money you'll receive from Social Security may only measure a small portion of what you might need to live on after you retire. And due to a large population of Baby Boomers approaching retirement age, Social Security may not provide sufficient supplemental income by the time you reach retirement.
So, above and beyond the income you may or may not receive from Social Security, how much will you need to have saved to maintain your current standard of living while retired? A good rule of thumb is to estimate at least 70 to 90 percent of your pre-retirement annual income to maintain the same lifestyle.When to start planningIt is never too late to begin planning for retirement. Keep in mind, however, that the earlier you start the less work you and your money will have to do to make retirement a reality. The sooner you invest your money into retirement savings, the longer the opportunity your funds will have to grow and compound. As a result, the base amount you need to invest to meet your retirement goals could be considerably less if you invest your money now rather than later and will undeniably get you off to a very powerful start.Accounts to considerPlanning for your retirement and choosing the right savings plan need not be a daunting task. In fact, an investment professional can help you select a retirement plan that best suits your needs. Start by reviewing the common retirement plan vehicles below. Then, talk to one of our investment professionals to determine which of these plans, or perhaps a combination of multiple plans, will help you reach your goals for a comfortable retirement.
Most retirement accounts come with potential tax benefits. Once you establish and fund your retirement account(s), consider boosting your tax-deferred savings, and provide yourself with extra income by purchasing an annuity.
The risk factorInvestments come with risk. The key is to determine the right mix of investments for your retirement portfolio to help you achieve your retirement goals with a risk tolerance that's right for you. By diversifying your investments, you can help to reduce your overall risk.
If you're at a point in time where you depend more on your retirement savings for income, you should be investing conservatively to preserve your assets. However, if you can afford to invest a larger portion of your savings in higher risk investments, the potential for higher returns could help you increase your savings during retirement and provide you with more monthly income.
So, ask yourself the question, "Can I afford to and am I comfortable taking high risks?" If the answer is yes, the amount of risk you're comfortable with can assist you in determining which investment vehicles are appropriate. If you're comfortable with high risk and have a long-term horizon, investing in stocks and stock-based mutual funds may be right for you. If you prefer investing in moderate to low-risk investments, you may want to consider bonds or bond mutual funds. Talk to an investment professional to determine what level of risk is suitable for your current financial situation and your retirement goals.
To schedule a free consultation, find an investment professional at a WaMu financial center near you.
