Retirement: Financial Advice
Saving for a comfortable retirement requires decades of careful planning. It may be necessary to have saved hundreds of thousands of dollars to preserve your current lifestyle through your Golden Years. As a beginning investor, the numerous types of investment accounts and securities at your disposal may be overwhelming. To strategize, you must first appraise your current finances.
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Identification
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Evaluate banking statements, pay stubs, and current investment paperwork to determine your amount of monthly free cash flow. To calculate free cash flow, you would subtract your expenses from income. Free cash flow is available to save towards retirement each month.
Features
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Retirement planning advice requires goal setting, in order to be effective. Through goal setting, you will describe the timing for the type of lifestyle you wish to lead in retirement. For example, you may wish to retire to an oceanfront community off Southern California's Pacific Coast Highway --- in 20 years.
With a goal in mind, you can calculate the costs of providing for living expenses throughout your expected life span. From there, you may use an online financial calculator to toggle the numbers --- for the amount of retirement money that should be saved each month alongside an adequate rate of return to meet your objectives. At this point, you could also realize that your expectations are unrealistic. Adjust accordingly, by working for additional years or downsizing expenses to save money.
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Types
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The Internal Revenue Service and financial services industry have set up multiple vehicles that are specifically designed to help you save money for retirement. These vehicles include annuity, 401(k), and Individual Retirement Account (IRA) plans. These special accounts offer tax-deferred growth, as you save for retirement. The 401(k) plan is especially important because it combines tax incentives alongside an employer match. Up to a certain point, your employer may match any deposits you make into the 401(k) plan on a dollar-for-dollar basis.
These retirement accounts, however, do carry severe tax penalties if you withdraw money before a certain age. As of 2010, you may owe a 10 percent penalty tax on retirement account withdrawals made before age 59 ½. For more flexibility, you should also open up a regular taxable brokerage account as part of your retirement plan. Amid emergency, you can tap the taxable account for cash.
Strategy
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The Securities and Exchange Commission recommends diversification as a strategy to manage risk, while also allowing for long-term growth. As a beginning investor, you may opt for diversification through separate stock and bond mutual funds. In recession, your bond fund should continue to generate interest income and buffer against losses. Alternatively, your stock fund will provide strong returns when the economy is growing. Diversify according to age, and purchase more bonds to reduce risk as retirement approaches.
Warning
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Account for current liabilities and insurance policies, as part of your retirement plan. Work to aggressively pay off high interest rate credit card debt and purchase life, health and disability insurance coverage, while also saving for retirement. Without insurance, your retirement savings may be lost due to hospitalization or natural disaster.
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