Retirement Planning – a Process with a Purpose
From RBC Bank
RALEIGH, N.C. – May 12, 2010 – Planning for retirement can sound to young ears like something best left to others who are …older. That’s a shame.
The sooner you begin to put money away for retirement, the faster your savings can build into a substantial fund with the potential to provide a flexible and sustainable future long after your working years are behind you.
To meet your needs in retirement, you’ll likely need 70-80 percent of your peak salary in order to live as well as you do before retirement.
As you look ahead, it may be helpful to think of two distinct phases of retirement planning – pre-retirement and post-retirement.
In challenging economic times, you might be tempted to put off starting – or adding to – your retirement savings. But, rather than postponing or eliminating retirement savings and investing, look for ways to do at least a little, and try make it a part of your ongoing budgeting, even if it’s at a lower level than you might have done a year or so ago.
If you are just starting to save and to develop your budget, record your sources of income, as well as your monthly expenses (fixed and variable) and review your budget monthly.
While it’s never too late to start saving, starting your retirement planning in younger years lets your savings and investments potentially reap the benefits of compounding interest and dividends. Continuing the discipline of savings increases the likelihood that you will meet and exceed your retirement goals; and participating in a company 401(k) with matching funds or an IRA gives you a valuable tax benefit on top of the retirement savings you accumulate.
The interest on credit cards and other consumer debt is generally far greater than the interest on a savings account or even a strongly performing stock. So, a great way to free future money to put in retirement savings is to focus on paying off high-interest debt sooner rather than later. Particularly as you near your target retirement age, set as a priority paying off debt with the highest interest rates.
Insurance – life, disability and long-term care – can make a huge difference in your lifestyle and the lifestyle of your family should death, an accident or illness strike unexpectedly. Planning for and purchasing appropriate insurance generally is more affordable in the pre-retirement phase. And it’s never too early to have a will and related documents in place.
When you retire you may want to travel, start a hobby, go back to school, volunteer, start a business or work part-time. The truth is, you likely will have a period of adjustment, and that’s a good time to keep a close track on your expenses and to establish a new budget that reflects your new retirement income streams.
You will want to make sure that you are making the best use of Social Security, taxable investment accounts and your IRAs and tax-deferred plans. Remember that just because you are in retirement does not mean that you don’t need your money to grow, (retirement can last for many years, after all). But you should likely consider more conservative, less volatile choices than a younger investor might. You will want to balance taxes, liquidity needs, rates of return and the goals of your estate plan.
Your life insurance needs may be different in retirement, so you should look at your policies and evaluate your options for whole, variable, and universal life, considering premiums and tax-deferred growth, converting to an annuity or perhaps cashing in policies.
You should consult with professionals and review your will from time to time; likewise you should make sure that documents such as powers of attorney (including health care power of attorney) and living wills are in order and meet your approval.
Once you’ve started your retirement planning process, you’ll likely find that it’s not too difficult, and it is comforting to know that you have established a path forward for building and then managing your assets to meet your future needs.
This article is provided by RBC Bank. The information included in this article is not intended to be used as the primary basis for making financial decisions. RBC Bank does not provide tax or legal advice. Please consult your own financial, tax or legal advisor.
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