When we talk about retirement, most of us are still thinking about our parents’ retirement and how they did – or did not – plan properly for it. It’s no big stretch to think that our retirement will differ significantly from that of our parents, but there are still lessons to be learned from them in preparing:
1. Seek out a pension plan. If you are considering a career change or job move, look for companies that offer traditional pension plans. Having a pension can make an incredible difference in retirement security. There are a few companies left who offer them. If you can get one, do!
2. Think of Investing for a Retirement that can last 30-40 years. Look for non-traditional forms of investment that can provide cash flow to you later. Consider investing in successful local businesses; invest in yourself with more education or training or by opening a business of your own; invest in low risk loans or private mortgages; become a member of www.lendingclub.com where you can invest in private loans with much better returns than depository returns.
3. If you don’t have a pension plan, compensate. Start investing in a retirement planning early and keep investing in it throughout your working life.
4. Diversify. Do NOT put all your eggs in one basket, or one kind of basket. Many people only put their money in IRAs and 401(k)s, which creates overconfidence in what resources will be available. Overusing qualified funds also guarantees you’ll overlook other important investment opportunities because you’re locked into the investments the plan offers. Self-directed IRAs give you more control and are worth the time to find a good custodian and find a great investment.
5. Participate. Don’t leave your planning to an advisor. There are great advisors out there, but your ability to retire is up to you and no one else. Know what you own. Know how you own it. Know the potential returns, cash flow possibilities, and tax implications of all your investments. Question everything. The folks who lost everything in the Bernie Madoff scam didn’t question anything. Take control and be the master of your money, not the other way around.
6. Plan for health care expenses. It is estimated that most Americans will spend at least $240,000 on health care in retirement, and you will either need to save that amount or have a health coverage plan in place to cover your retirement medical costs. Invest in a Health Savings Account (HSA) to the maximum allowed, $3,250 for single person, $6,450 for a family in 2014. That untaxed amount rolls over if you don’t use it and can be invested for strong returns. The only qualifier is that it has to be used for healthcare not covered by your insurance. You know you’re going to need it, so get the tax break for it. It’s like a discount coupon on future healthcare, and you get to use it as an investment account so it can grow over time!
7. Start early and stay the course. As soon as you start working, aim to save at least 10 percent of your income every year – 15 percent is even better if doable. And keep saving throughout your working years. As your salary increases, try to set aside even more so the comfortable retirement you envision can become a reality. If it’s late in the game, just start where you are and don’t spend too much mental energy on what you don’t have. Focus on what you want and envision a retirement of joy and freedom. The start paving the way, one dollar, one investment at a time.
If you’d like to learn more about retirement planning strategies for your family, call our office today to schedule a time for us to sit down and talk. We normally charge $750 for a Family Wealth Planning Session, but because this planning is so important, I’ve made space for the next two people who mention this article to have a complete planning session at no charge. Call today and mention this article.