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Retirement Financial Planning Tips For Success

November 27, 2019 Author: Tess Downing, MBA, CFP®, Complete View Financial

Complete View Financial

According to recent survey results, most Americans believe that they need $1.7 million to retire comfortably. However, additional data reveals that the average 60-year-old in 2016 had less than $100,000 in retirement savings.

In a further poll by Bankrate, it was uncovered that one of the primary reasons Americans are not saving more for retirement is a feeling of comfort with their current savings rate.

These discrepancies can in part be put down to a lack of adequate retirement financial planning. Without structured planning, there is a chance that your savings plan will not meet your retirement needs, even if you assumed that it would.

Fortunately, there are ways to avoid this, even if you are already gradually approaching retirement. Read on to find out more.

Calculate How Much You Will Need to Retire On

The first step you must make to ensure your personal finances are in order for your retirement is to calculate how much you will require. This way you can settle on how much you need to save per month in order to meet this target.

The commonly held rule of thumb is that one should put away a minimum of 10% to 15% of your income per year to have enough to cover all your retirement needs. However, this ballpark goal does not address individual spending requirements. It is also only applicable to those that begin their retirement savings in their 20s.

A more realistic method may be to calculate what your yearly expenses are and then multiply this by 25+. According to predictions based on social security life charts—there is a 30% chance that you will live to 90, which makes it wisest to multiply by 30 are more.

Some sources will recommend saving 80% of your current expenses for every year of retirement, as certain living expenses such as commuting costs can go down upon retirement. This might not, however, be the wisest move as most retirees may want to have additional income to spend on things like travel and other leisure-related activities, and in reality while some expense might reduce, others (such as medical costs) could increase.

Establish Savings Targets

Once you have generously calculated what you will need to retire on comfortably, it is time to assess whether your current savings meets these targets. If not, then you will need to adjust your savings plan to accommodate them.

There are a variety of methods that you can adopt to start increasing your savings. Let’s take a look at a few.

Take Advantage of the New 401K and IRA Caps

Thanks to the Tax Cuts and Jobs Act, the maximum tax-deductible contribution that can be made in 2019 to a 401K plan and an IRA is $19,000 and $6,000.

If you have a 401K plan or an IRA, then it is in your best interest to max out this contribution cap. Not only will you be saving more each year, but you could also be reducing your tax liability.

If you have a 401K plan, be sure to regularly check that your contribution has not been set to the minimum. Employers will usually deploy the automatic initial contribution rate of 3%. Unless you stipulate otherwise, this rate will remain fixed.

Another top retirement planning tip when it comes to 401K plans is to consider taking advantage of the auto-escalation feature that many plans offer. This automatically raises your contribution annually, generally by 1%.

Lastly, watch out for hidden fees on 401K plans. These can stem from your company’s fund manager charging overly high administration fees, and from expense ratios associated with certain funds. To curtail these fees, consider low-cost mutual funds and EFTs.

Uncover Any Lost Pensions

If you worked for a previous employer, that was covered under the Pension Benefit Guaranty Corporation, who went bankrupt, be aware that you are still entitled to the pension you accumulated while working for them.

Following up on any ‘lost’ pensions can give your overall retirement savings a substantial boost.

Be Savvy About Your Tax Withholdings

A common consensus is that withholding more taxes to avoid an unexpected tax liability, and receive an attractive refund, is a smart move.

However, by paying higher amounts of tax withholding, only to get it back at the end of the year, you are limiting the growth those funds could be generating during that period. If instead, you lower your withholding and invest that money into your retirement plan, it can begin growing for you.

Be sure however to still pay enough tax that you won’t be faced with a big and unexpected bill from the IRS come tax time.

If you are unsure what withholding amount to settle on, seek out the help of a tax professional.

Reduce Debt That Does Not Build Assets or Provide Tax Relief

Debt generally falls into two classes. That which builds wealth and assets, such as a mortgage (also partially deductible), and that which does not, such as car payments (non-deductible).

To shore up your personal finances, try to avoid and reduce non-wealth building debt, as well as debt which is not tax-deductible.

Tailor Your Insurance

As you get older, your insurance requirements are likely to change. Tailoring your insurance to meet these new conditions is another financial planning area that you need to address in order to ensure that your retirement needs are met optimally.

For example, in the years approaching retirement, coverage for things such as life insurance becomes less important, while extended medical coverage or even long-term care insurance may be necessary to avoid unexpected financial blows.

Get Good Retirement Financial Planning

Financial planning for retirement is essential to ensure that all of your requirements are met during that phase.

If you would like to review your personal finances and retirement plan with a professional, you can take a look at our retirement planning services, or contact us directly.

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