How to Take Charge of Your Own Retirement

Plan early for a comfortable retirement.

The days when a majority of workers could rely on a secure company pension are long gone, and today most workers need to work just as hard at planning for their futures as they do at their jobs. The sooner you take charge of your retirement planning, the easier it will be to build the nest egg you will need to sustain your desired lifestyle after the paychecks stop coming.

Instructions

1. Research the guaranteed sources of income you can expect to receive in retirement. Log on to the Social Security Administration website (see Resources) to get an estimate of your monthly Social Security payment. Contact the human resources department where you work and ask about any pensions for which you are eligible, as well as any company-paid health care benefits that continue after your retirement date.

2. Create a retirement budget to realistically assess how much income you need to generate to meet your basic living expenses. You can base your post-retirement budget on your current household budget, but keep in mind that some expenses, most notably health care spending, may rise sharply once you stop working.

3. Compare the amount of guaranteed monthly income you can count on in retirement to your projected monthly post-work expenses. Use that figure to estimate the size of the nest egg you will need, keeping in mind that a withdrawal rate of more than 4 to 5 percent greatly increases the odds that you will run out of money during your retirement.

4. Contact the human resources department at your employer and ask about the retirement savings programs they offer. Sign up for the 401k, 403b or other retirement plan the company offers. Participating in a 401k or 403b can lower your current taxes while letting you save for retirement, since every dollar you contribute is deducted from your taxable income.

5. Invest as much as you can in the company 401k or 403b, and consider investing in a traditional or Roth IRA as well. A traditional IRA gives you an immediate tax break, but you pay taxes on the money when you withdraw it. A Roth IRA is just the opposite---it does not give you an immediate tax break but you can withdraw the money tax-free in retirement.

6. Keep your investment costs as low as you can. Investing in low-cost vehicles like index funds and exchange-traded funds lets you keep more of your money working for you.

References

• Department of Labor: Taking the Mystery Out of Retirement Planning
• AARP: Your Retiremetn Action Plan

Resources

• Social Security Administration: Benefits Estimator