Courtesy of Melisa Cammack [firstname.lastname@example.org]
When planning for retirement, much of the same age old wisdom still applies; namely save more money and don’t take Social Security benefits too early. However, there are other ways to make retirement less stressful.
The first thing is not to worry about a target number that could be upwards of $1 million dollars. Many people are only focusing on this round sum and think that their retirement plans are set once they have reached this goal, but for the most part, there is no magic number since everybody lives a different lifestyle. It really only matters whether enough income is available to support a comfort level during the retirement years, and this will vary between individuals and depends greatly on their investments, interest rates and spending habits.
Consult a Pro
It is a great idea to consult a financial planner early in the game to help shape investments and post-employment status. He or she will be able to help dictate a smart plan of action based upon such factors as current age, say, the need of a California Medicare supplement, the amount of annual savings and total assets.
Retirement income itself has to be thought of as something unique, and since it has to last without the benefit of an additional stream of revenue, the implications of a smaller tax rate should be considered. For example, a rate of 15% available with dividends is more appealing than that of 35% for ordinary income, and by putting money into an after tax account, this can save significant cash.
This is but one factor to think about when planning retirement income.
There are also strategies for withdrawal of funds that make financial sense. Most experts recommend that taxable accounts are tapped first, followed by the traditional IRA vehicle then a Roth type. Not only will this increase the amount of available income but can also help to diversify the funds for tax purposes.
Allocation of Assets
Another area to consider is the allocation of assets among different holders. As workers get closer to retirement age, they tend to transition their portfolios into a more conservative vehicle, and that is why a tax deferred account such as the aforementioned Roth and traditional IRAs make the most sense to decrease the bite from taxes.
One more important aspect to consider is how investment will work after retirement, not just up to it, because the process of transitioning a portfolio should be initiated well before retirement age. Again, this is where having a trusted financial adviser comes in handy, because a common mistake made by many people in this situation is buying the first thing that is offered, this is wrong and can result in significant financial loss.