Retirement Planning for a Secure Financial Future

If you're in business for yourself or going into business for yourself, something that will help you along the way is to have your own finances in order.  Part of that is preparing for your financial future. 

Savings Plan for a Secure Financial Future

If you're between the ages of 21 to 35, you're in luck!  You're young enough to start out right and set aside savings that will prepare you for a secure financial future, for retirement, and for anything unforeseen that may arise.  If you begin setting aside $200 a month in a retirement account of some kind from the time you're 22 and earn about 8%, you'll have more than $37,000 saved within 10 years.  You'll have more than $122,000 saved in 20 years, and at least $1.2 million set aside for retirement by the time you reach age 67.   

Certified financial planners recommend saving 10-15% of your salary towards retirement at this age, with the best investments being a 401(k) plan.  Your contributions to a 401(k) are excluded from taxable income, and most companies that offer a 401(k) will even contribute towards it, matching anywhere from 25-100% of your contributions.  

If your company does not have a 401(k) plan, or you're already in business for yourself without the 401(k) option, your best choice may be a Roth IRA.  Contributions are not tax-deductible, but can be withdrawn at any time tax-free, and are good additions to your savings plan even if you are already contributing to a 401(k).  Another savings should be for you to not hurry in paying off your student loans, as the interest rate is so low and fixed if started after 2006. 

Saving for your Retirement Planning

If you're between the ages of 30 to 45, you are likely in the stage of buying a home and having children and not able to save as much, so hopefully, you've saved as much as possible already in your 20's.  But if not, and you do not have an emergency savings fund yet, begin setting aside in a separate account enough to add up to roughly 6 months of your living expenses.  This way, if you lose your job, or need a down payment for a home, you're not tempted to raid your retirement account.

Also, if you have children, you'll want to consider saving for them for college.  Many states now offer a 529 savings plan for your child's college fund, where you can save for their college tax-free.  Plan to set aside anywhere from $107 to $222 a month for your child's college fund.

If you're between the ages of 40-55, you hopefully have a nice retirement fund and college fund set aside by now, but if you don't, you'll have to play catch up.  If you're 45 and have nothing saved yet, you'll now have to start setting aside 29% of your salary to catch up, as opposed to 13%.  And if you're just starting at age 55, you'll have to set aside 43% of your salary. 

Financial Future of Your Child's College

If you've reached this age without setting aside for your child's college, you'll now have to start setting aside a whopping $637 monthly to catch up, or consider taking out a Parent PLUS loan for your child's college.  The rates are low and fixed, and are forgiven if your child is disabled or dies.  However, keep in mind, this may put you in an awkward place financially or your own retirement by having debt to still pay off at that time. 

Another option is to take advantage of dropping interest rates and purchase a condo near the college for your child and a few others to live in.  The other students can pay towards the rent, and when your child is finished with college, you can keep it as an investment, continuing to rent it out to students or to alums during big sports weekends, etc.

Financial Planning for Retirement

If you're between the ages of 55-66, retirement may be near for you and you should think seriously about being prepared financially.  On the up-side, for many these are the best years to set aside for retirement.  Most major expenses are behind you and you can concentrate on saving for retirement during these peak earning years.

After the age of 50, you're now able to contribute an additional $5,500 annually to your 401(k), bringing the total you're able to put into it to $22,500.  You're also able to contribute an extra $1,000 annually to a Roth IRA, bringing that amount to $6,000.

Savings Plan by Downsizing

Also by now, your kids are most likely gone to college and living on their own, so consider down-sizing.  Even if you have a house that's lost value in this economy, simply living in a smaller place will save you thousands on taxes, utility expenses, and insurance that you can then channel into savings.

You might want to consider consolidating your 401(k) plans at this point into one account, to get a better handle on how much you have, and this can also open more opportunities for you with your savings.  Also, consider purchasing long-term care insurance.  A devastating illness at this age can wipe out your savings, and so can a stay in a nursing home.  A good time to start long-term care insurance is in your 60's. And you may want to consider a plan for a specific period (like 5 years) as opposed to an expensive plan that goes for a lifetime once you enter a home, as the average nursing home stay is 2 1/2 years.

You are eligible to begin withdrawing from social security at age 62, but if you can wait till you're 66, you will increase your social security payments by 33%.  Basically, the longer you work, the better off you will be.  And when estimating how much you will need to live on when you retire, consider this...that the average 65-year-old couple will spend $240,000 on health care in retirement.

Test Your Retirement Planning

To test yourself, consider living for a year now while you're working on what you believe you can live on when you retire.  This exercise alone may help you cut back unneeded expenses, helping you save even more, and it's known that "a good saver will beat out a good investor every time."

Ahh...and now that you've begun to manage your money and savings, why not consider building your financial future into a secure retirement bundle...contact me to find out how.  

To your success,

Thea