You’ve been dutifully contributing to your 401(k) plan for years, possibly even decades. Now retirement is right around the corner, and all of that disciplined saving is about to pay off. If you’re like many retirees, your 401(k) plan may be your single largest retirement asset.
As you’ve saved and accumulated 401(k) assets, you’ve probably asked yourself a number of questions. How much should I contribute? What allocation is best for me? Should I roll my old 401(k) plans into an IRA? The “sharing economy.” It’s one of many ways that the internet and our new digital society has upended the way we do business. For the uninitiated, the sharing economy is based off of the idea that you can earn supplemental income by simply “sharing,” or renting, assets that you already own.
An example is Uber, with which you use your own car to give people rides and earn income as you do so. Another is Airbnb and other property rental sites, which allow you to rent your home, vacation property or even a spare bedroom to another person. There are even sites that allow you to rent tools, yard equipment and other types of property. Every year, Gallup conducts a survey to gauge Americans’ most pressing financial concerns. For the 16th year in a row, Americans have said that “not having enough money for retirement” is their biggest concern. In the 2016 study, 64 percent of Americans expressed concern about retirement.1
It’s an understandable concern. Now more than ever, the burden is on the retiree to accumulate enough assets to support a multi-decade retirement. While some retirees may have a pension available, many will rely on some combination of Social Security and distributions from their personal savings. Given the scope of the challenge, it’s easy to see why many workers are concerned. According to a 2014 study by American Consumer Credit Counseling, nearly one-third of American households provide financial support to adult children.1 It’s a common phenomenon for parents of young adults: The child leaves the house and graduates from school, only to return for financial support because of student loan debt, a weak job market and other factors.
The phenomenon is so common that these grown children have a nickname: “boomerang kids.” The name is fitting because of their propensity to return home rather than set out on their own. The statistics are depressing no matter how you look at them. Nearly 40 percent of Americans have given little or no thought to retirement planning.1 More than half of Americans have less than $10,000 saved for retirement. One-third have nothing saved.2 Nearly two-thirds of Americans don’t use a budget.3
Why is retirement such a challenging goal for so many Americans? There are a number of possible answers. One is that many may feel retirement is far in the future, and they believe they have more pressing concerns today. Others may face financial difficulties that make it difficult to save. For many Americans, debt is a fact of life. According to a study from NerdWallet, the average American household has more than $15,000 in credit card debt and more than $130,000 in total debt.1
While some forms of debt, such as mortgages and student loans, can be helpful, others, like credit cards, can threaten your financial stability. In retirement, debt can be especially dangerous. If you’re living on a limited, fixed income, you may not have room in your budget to make substantial debt payments. When it comes to planning for retirement, there’s a lot of information available. From financial media to financial professionals to even your own friends and family, there is no shortage of retirement planning advice.
Unfortunately, not all advice is good advice. In fact, there are many persistent retirement-related pieces of wisdom that may not be right for you and your goals. Below are four common retirement planning myths. Think carefully before you make one of these assumptions a component of your retirement plan. When you picture your retirement, working at a part-time job might be the last thing on your mind. But that's exactly what many retirees have chosen to do, for a variety of reasons. In fact, statistics from the American Association of Retired Persons (AARP) demonstrate that 20 percent of Americans over age 65 are still employed to some degree.
In a few cases, these working seniors represent those who just haven't retired yet. But many people initially retire, only to re-enter the workforce at a later time. If you're wondering why, the AARP gives five main reasons that working in retirement is a common choice among senior citizens. They're bored. Most of us believe that we can't wait to stop working and enjoy our retirement years. But many seniors actually discover that they're bored after their careers have ended! By returning to work, at least part time, seniors stay active and feel engaged in their communities. They've been pursued. It feels good to be wanted, and many employers are actively seeking older workers! The experience level, maturity, and high degree of skill displayed by retirees are highly valued attributes in the working world. It can be hard to say no when employers pursue you! They just don't feel “done”. Many of us pursue careers that pay well, but that we find emotionally unfulfilling. It's understandable to make this choice when we have bills to pay and a retirement plan to fund. But later in life, we may decide that we're ready to take on a second career that we truly enjoy, or that makes a difference in the world. They can afford to do it now. Sometimes the more fulfilling jobs are the lower-paying ones. But now that your primary career has funded a comfortable retirement, and you've claimed your Social Security benefits, you may find it possible to take on a rewarding position doing something you truly love. They need the income. Sometimes working in retirement isn't all about personal fulfillment or staying active. Some seniors retire to find that their retirement income doesn't quite provide for the lifestyle they truly want. In that case, a part time job can help pay the bills or fund an annual vacation. If working in retirement sounds like fun, then go for it! But if you don't want to be forced back to work out of necessity, then you need to make sure your retirement plans are in order. Schedule regular meetings with your retirement planning professional to make sure that your financial plans align with your ultimate retirement goals. 14324 – 2015/4/6 If you're like many people, you may tend to lose track of your financial priorities. One day you realize that you aren't quite sure of how much you've saved for retirement, or how your financial outlook is holding up these days. It's a good idea to review this information periodically, to make sure you're on the right track toward a comfortable future. Not to mention, you'll sleep better at night once you get your financial affairs in order!
Review your retirement plan contributions. Are you currently contributing the maximum to your retirement plan? If so, you can skip this step. But if you aren't taking advantage of your maximum tax-advantaged contribution, call your human resources department at work. Increase your contributions by an amount that is comfortable for you, even if you don't reach the maximum. Any increase is better than continuing to save at a rate that is too low. Review your fund allocations. When you originally chose your retirement fund allocations, you probably based those decisions around your retirement goals and your risk tolerance. Over time, goals and risk tolerance usually change. Therefore, your investment choices need to change as well. Schedule a meeting with your financial advisor, review your goals, and talk about making necessary changes to your retirement fund allocations. Review your retirement plan. While you're meeting with your financial advisor, talk about your overall retirement plan. You may have experienced changes to your income or lifestyle since your last meeting, or you may be thinking about a new goal for retirement. Ask your advisor to run a projection to see how your current funds will sustain you in retirement. Rather than waiting until retirement time to discover that your plan isn't solvent, make changes now to help ensure that you can support your lifestyle when you stop working. You may have other financial goals in mind, such as getting out of debt. Discuss these with your financial advisor at your meeting. But keep in mind that if you accomplish the steps outlined here, you will be well on your way to a solid financial future. 14325 – 2015/4/6 When debt starts to accumulate, it can be tempting to start writing checks to lenders any time there's a little extra money in the budget. But as with anything else in life, it is best to analyze the situation and craft a smart, logical plan before you leap into action. Some types of debt are more damaging than others, so follow this guide to paying off your debts the smart way.
Which debts should be your top priority? Those with high interest rates should be addressed first. For most people, this means credit cards, since rates can average between 13 and 15.7 percent. First call all of your credit card companies, and find out what rates you're paying on each card. If you can, transfer high-interest balances to a card with lower interest. Otherwise, pay as much as you can on the card with the highest interest rate until it is paid off, then work on the card with the next-highest interest rate, and so on. If you hold several credit cards with high interest rates, you might consider a consolidation loan. If you bought your car on a zero-interest special, your car loan shouldn't be a high priority to pay off early. For most people, though, car loans are a medium priority debt. Generally the interest rates are higher than a mortgage but lower than credit cards. It's a good idea to pay off your car loan early, if you can. You might save hundreds of dollars on interest. Car insurance is also a debt. Did you know that most auto insurance companies charge you more for making monthly installments, rather than purchasing 6 or 12 months of insurance at one time? If you can, avoid making monthly payments and you can save some money. You might dream of paying off your mortgage early, but it's a low-priority debt in the grand scheme of things. If you're one of the few people still carrying a higher interest rate on your mortgage, look into refinancing the loan. The main idea is to worry about high-interest debts first, and then work your way down to debts that carry a lower interest rate. But don't forget to save for retirement, and set aside some money in an emergency savings account. In fact, having emergency funds on hand can prevent debt in the future! 14326 – 2015/4/6 |
Kirt CarstensCarstens Financial Group focuses on providing comprehensive asset management, estate planning and life insurance solutions. Allow us to help you secure your financial future. Archives
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