By Julie Ritten, founder of Ritten Financial
Longevity: Climbing the Mountain
What’s the goal of climbing a mountain? The right answer is not to reach the top, but rather to make it down safely. Retirement planning is similar to mountain climbing in that the main focus is often on building retirement assets, rather than planning how to get back down the “retirement” mountain without running out of money. Creating a retirement spending strategy can help ensure your money lasts as long as your retirement. If you’ve missed the retirement planning boat, here are five tips to help you catch up!
- The first step is to create a budget. Write down all of your expenses including household, mortgage, cable, phone, life, health and auto insurance, gas, electric, food and entertainment, medical expenses (including physician and prescription(s)), personal, holidays, etc. The list goes on and on. It might help to review credit card statements for any forgotten expenses. This would be a good time to review all of your insurance policies, Life Insurance: Can you pay it off before retirement? Health Insurance: Are you on the best plan for your needs and financial position? Auto insurance: always prudent to review rates and compare prices.
- Take advantage of catch up contributions on your retirement plans. IRA/ROTH contribution limit is $5,500, add an additional $1,000 if you’re over 50. Talk to your financial consultant for ROTH phase-out. Max 401k and 403(b), 2016 contribution limit is $18,000. For the over 50 crowd, you get an additional $6,000 to put away. At least contribute up to employer match amount. If you don’t contribute up to matching, you’re leaving money on the table. For the self-employed, you get an additional $3,000 catch up.
- Pay off debt before retirement begins. If you think you’ll be able to pay off debt during retirement, think again. Remember, once retired, every day is a Saturday. When do you currently spend the most money? On the weekend, when you have the most time to play golf, watch movies, travel, etc.? You might want to change some habits: walk the park, visit your local library, in addition to wonderful newly released books they have a plethora of free movies to check out. Look into volunteer opportunities. Being around younger people will make you feel younger.
- Get a part-time job. Many individuals are phasing into retirement, either with their current company, or working part-time somewhere to pick up a few extra bucks and keep involved in their community.
- “File and suspend” and “file restricted” are Social Security claiming strategies that can help married couples increase their lifetime Social Security Income. The enactment of the Bipartisan Budget Act of 2015 on November 2, 2015 impacts these popular strategies for couples who have not yet elected to receive benefits.
Those who are at least age 66 (or will be by April 30, 2016) can still file and suspend benefits, but need do so by April 20, 2016. Most importantly, speak with your financial advisor to find out if you’re eligible. I have a client that was not aware that she could earn 50 percent of her husband’s Social Security just by calling the Social Security office. A single phone called earned her over $800 per month for the next four years! That’s an additional $38,400 in her pocket!
The Changing Retirement Landscape
Today, many people are finding that the traditional means of funding a comfortable retirement can no longer be relied upon. The caps placed on qualified retirement plan funding, the minimal income replacement percentage of Social Security, and the dwindling number of employer provided pension plans mean that a much greater portion of your retirement savings must come from other sources.
What makes this even more of a challenge is the fact that the more you earn, the more you need to save. Individuals generally need 76 to 85 percent of their pre-retirement income to live comfortably in retirement, according the Social Security website. Check out your estimated Social Security retirement income calculation using the Social Security Quick Calculator at www.ssa.gov/oact/quickcalc. Personally, I believe you will need closer to 100 percent of your income, especially when you add in inflation.
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