By Akogu Yusuf
Plan to work through your retirement income plan. There are many planners who charge a flat or hourly fee for a specific assignment. Or you might want to consider hiring a pro on an ongoing basis to help you manage your finances throughout your retirement.
Take advantage of catch-up contributions. Once you cross the retirement savings Rubicon that is the half-century mark, the annual contribution limits for IRAs and 401(k)/403(b) plans rise. If a spin through an online retirement income calculator didn’t deliver the numbers you’d like, stuff more money into your accounts now.
Build tax diversification. If you’ve done most of your workplace retirement savings in traditional accounts, you might want to consider spending a few years saving in a Roth equivalent, if your plan offers one. Retirement planning experts recommend adding some Roth retirement savings as a way to create “tax diversification” that can help keep your IRS tab down once you retire.
In your 60s:
Check if these numbers add up. By age 60, have eight times your salary saved. By age 67, have 10 times your salary saved.
Consider waiting to claim Social Security. You can start collecting your retirement benefit at age 62. Every month you delay past 62 earns you a higher eventual payout. Wait until age 70 and your payout will be 76% higher than what you’d get if you claim eight years earlier.
Earn just enough to avoid starting retirement account withdrawals. If you want (and can) continue to work full-time at a fast-paced job, that’s great. But if you’re ready to downshift or you were pushed out of your career, a practical strategy may be to work at a job that brings in enough to cover your living expenses, even if you can’t afford to continue to add to your retirement savings. At this point, giving what you have already saved more time to compound before starting withdrawals is a smart move.
INVEST FOR RETIREMENT WITH A LONG-TERM FOCUS
What you manage to save for retirement is the biggest factor in how comfy you’re going to be when it’s time to step off the work treadmill. But how you invest the money in your retirement accounts plays a large role, too.
Saving for retirement breaks down into how much you want to invest in stocks and how much in bonds. As if this needed pointing out now, stocks can be volatile at times, though over long periods (10 years or more) they have historically delivered higher returns than bonds.
Bonds are more chill. They don’t fall like stocks in rough times — in fact, they typically rise when stocks are cratering. However, they don’t gain as much as stocks, either.
A hidden risk to consider when you are deciding on your mix of stocks and bonds is inflation. That’s the annoying fact that, over time, stuff costs more. Even at a benign 2% inflation rate, what costs $1,000 today will cost more than $1,600 in 25 years. Stocks over long stretches have produced the best inflation-beating gains.
The right stock-bond mix depends on your personal goals, stomach for risk and time horizon — or number of years you expect to hold your investments. Jack Bogle, renowned founder of Vanguard and tireless advocate for individual investors, suggested this simple rule of thumb: Subtract your age from 110. That’s how much, percentage-wise, you might want to keep in stocks.
Big-ticket purchases typically involve taking out a loan. The house you want to buy. The cars you drive. Helping your kids pay for college.
The key to building financial security is to only borrow what you truly need. And that can get tricky because right when you are looking to buy a house/car/college education, the lenders are focused on telling you the maximum you are allowed to borrow. No one is going to look you in the eye and suggest you borrow less. Lenders have no clue, or interest, in how the loan they are dangling in front of you impacts your ability to meet all your other goals.
That’s on you. Your goal should always be to borrow as little as possible to meet your goal. The less you borrow, the more money you have for other goals. You need a car? Okay, but do you need a new car tricked out with every premium package? Might your financial life benefit from considering a less expensive model? Buying a used car that has been on the road for three or so years means you’re letting someone else pay for the 40% to 50% depreciation that is common in the early years after buying a new car.
Millennial who saved $1 million: Buying a new car is ‘one of the worst financial decisions you can make in your life’.
Same goes with the house. A recent study found that the median price of a four-bedroom home was $100,000 more than a three-bedroom. Or consider a slightly longer commute, which can also be a big money saver.
Borrowing as little as possible is how you free up hundreds of dollars in your budget to put toward other goals.
Once you determine your maximum borrowing budget, doing some advance prep work to get your credit score as high as possible can help you qualify for the best deal.