Ask any reputable financial planner how to secure a decent retirement, and you might just get a laundry list of what you should or should not do. Most represent pretty good thoughts.
Broker/dealer giant Fidelity Investments maintains that investors who are more confident and better prepared have followed a few simple, yet smart moves to help them to a more comfortable retirement.
These are indeed worth reviewing.
1. Max out/catch-up your 401(k) and IRA. Roughly one in 10 employees invests the full pre-tax contribution allowable each year in their 401(k). When creating their retirement income plan, Fidelity found that investors in or near retirement who started saving early and consistently took advantage of savings opportunities, including tax-advantaged workplace savings plans, IRAs, employer matches and "catch-up" provisions, generally were better prepared for what they needed for retirement.
2. Save now to have more later. One of the most common obstacles for saving for retirement is finding extra cash, and the most common solution is reducing expenses and paying off debt. For example, put off purchasing a new car for a couple of years, eliminate credit card debt, or take a major vacation every other year.
3. Make your asset mix match you. Avoid two of the most common retirement savings mistakes: being overly cautious or taking excessive risks when deciding how much of your assets to invest in cash, stocks or bonds.
4. Stretch your salary. While Americans generally don't think about working in retirement, a number of investors are planning to work to some degree, and for several very good reasons. Some nearing retirement want to close the gap between their initial Social Security distributions and when employer pensions are scheduled to kick in. Others simply want the advantage of a regular income and subsidized health care benefits.
5. Create a regular income stream. Although company pensions are on the decline, many investors still want the peace of mind that comes with receiving a regular income.
6. Don't withdraw too much too soon. Odds are that at least one member of a 65-year-old couple will reach the age of 92. A large number of Americans developing retirement income plans underestimate their longevity and must adjust their expected savings withdrawal rates to better reflect their retirement budget.
7. Create a realistic budget. Two out of three pre-retirees have not developed a budget for living in retirement. Many of those who do haven't even considered the lifestyle changes that they'll face and how those changes will affect monthly expenses.
8. Expect the unexpected. Unforeseen events or illness can throw off the best of plans. Fidelity estimated that a couple retiring today at 65 should plan on spending $190,000 for out-of-pocket medical costs over the next 15 to 20 years.
It also found that retirees and pre-retirees are underestimating future medical costs. Only one in four have even purchased supplemental health coverage or long-term care insurance.
9. Stay on track. Pre-retirees and retirees anticipate having, on average, nine sources of household income in retirement. Not surprisingly, they expect that planning and managing these multiple incomes will be a more difficult task than saving for retirement.
To help stay on track, individuals and spouses should review their plan annually, including expenses, investments and asset allocation. In working with recent retirees, Fidelity found that, many times, investors' expenses in retirement exceeded their expectations.
10. Mix 'n' match. A successful retirement takes more than a one-step solution. Whether it's finding a "fun" part-time job, eliminating one of the family cars, or taking a vacation locally, the most confident, better-prepared retirees have taken action and implemented multiple strategies to extend their income, control their spending and maximize their savings.
Stuart Kahan is editor-at-large of Accounting Today, and the executive editor of CPA Wealth Provider.
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