As we enter the New Year, there is no better time to assess your current retirement plan and to set realistic goals for your long-term future. It is never too early or too late to start. Following are a few guidelines to set you in the right direction:
Know where you stand. First, thoroughly analyze your situation, calculating how much you need for retirement, what income sources will be available, how much you have saved, and how much you need to save annually to reach your goals. If you can’t save that amount, it may be time to change your goals. Consider postponing retirement for a few years so you have more time to accumulate savings as well as delay withdrawals from those savings. Think about working after retirement on at least a part-time basis. Even a modest amount of income after retirement can substantially reduce the amount you need to save for retirement. Look at lowering your expectations, possibly traveling less or moving to a less expensive city or into a smaller home.
Contribute the maximum to your 401K plan. Your contributions, up to maximum of $17,500 in 2014, are deducted from your current-year gross income. If you are age 50 or older, your plan may allow an additional $5,500 catch-up contribution, bringing your maximum contribution to $23,000.
Look into individual retirement accounts (IRAs). In 2014, you can contribute a maximum of $5,500 to an IRA, plus an additional $1,000 catch-up contribution if you are age 50 or older. Even if you participate in a company-sponsored retirement plan, you can make contributions to an IRA, provided your adjusted gross income does not exceed certain limits.
Move to a smaller home. As part of your efforts to reduce your pre-retirement lifestyle, consider selling your home and moving to a smaller one, especially if you have significant equity in your home. If you’ve lived in your home for at least two of the previous five years, you can exclude $250,000 of gain if you are a single taxpayer, and $500,000 of gain if you are married filing jointly.
Substantially increase your savings as you approach retirement. Typically, your last years of employment are your peak earning years. Instead of increasing your lifestyle as your pay increases, save all pay raises. Anytime you pay off a major bill, such as an auto loan or your child’s college tuition, take the money that was going toward that bill and put it into your retirement savings.
Restructure your debt. Check whether refinancing will reduce your monthly mortgage payment. Find less-costly options for consumer debts, including credit cards with high interest rates. Systematically pay down your debts. And most important, don’t incur any new debt. If you can’t pay cash for something, don’t buy it.
Stay committed to your goals. If you are starting your retirement planning in the later years of your life, it’s imperative to maintain your commitment to saving.
Happy – and prosperous – New Year to all!
Reesa Manning is Vice President and Senior Financial Advisor at Integrated Wealth Management, specializing in retirement and income planning. For more information, call Reesa at (760)834-7200 or [email protected].
The above is being provided for informational purposes only and should not be considered investment, tax or legal advice. The information is as of the date of this release, subject to change without notice and no reliance should be placed on such information when making any investment, tax or legal decisions. Integrated Wealth Management obtained the information provided herein from third party sources believed to be reliable, but it is not guaranteed. Form ADV contains important information about the advisory services, fees, business, and background and the experience of advisory personnel. This form is publicly available and may be viewed at advisorinfo.sec.gov
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