In our first post we wanted to make you aware of the extent of the retirement crisis and what it all really means. Now we want to provide you with some practical tips you can implement to improve your chances of having a successful retirement.
This is one of the easier things to do, but could be hard, depending on how good your cash flows are. Increasing the contribution rate to your 401k, 403b, 457 or IRA is probably the single most important thing you can do to help yourself. For many it is easiest to increase their contribution rates when they get an annual increase at work. The problem is that for many years employers did not provide their employees with wage increases and as a result the employees did not increase their contribution levels. We encourage our clients to shoot for 10%, and if their cash flows are good, maybe 15%. The younger you are when you start the better off you will be.
Consider a Roth
The concept of making 401k contributions as Roth contributions is confusing to some clients as most think about these contributions from the tax benefit they get for pre-tax contributions. Roths do not offer any current tax year benefit (in fact you must pay income taxes on all funds you will contribute now). However, the power in Roth contributions is that the growth of the account is never taxed. This is why it is best to utilize growth-oriented investments for your Roth contributions. Letting them just sit in a CD at the credit union will not benefit you. We can assist in cost-benefit analysis of Roth vs. Pre-tax 401k contributions.
This is a pretty complex topic but for starters we would encourage you to request a copy of your latest Social Security benefit statement. Be sure to check the earnings history as it is not always accurate. Recently we had a client who had some zeros in years when she definitely worked. It looks like her employer either did not submit the W2 or they made a mistake with the SSN. This is important as your Social Security benefit is based on your highest 35 years or earned income. Any zeros that show up will have a negative effect on your benefit amount – also called your Primary Insurance Amount.
This topic is also complex, but we want you to remember that if you will be turning 65 soon you have to take some action – to either enroll in Medicare and begin paying the Medicare Part B premiums or you need to let Medicare know that you will continued to be covered by your employer’s plan (or your spouse’s plan at work). If you plan to continue working and will be covered by your employer’s plan you MUST let Medicare know by completing the necessary forms. Otherwise, you could be hit with a 10% lifetime penalty for each year you delayed in signing up for Medicare Part B. You really want to avoid this if at all possible. A discussion of what type of supplement plan is right for you is too deep for this blog so give us a call if you want to discuss this.
Over the years numerous articles have appeared in business periodicals, newspapers and on social media about the need to create a plan. Academic studies have proven that those who create a financial plan and implement it are much more likely to experience financial success. If you have not done this for yourself we highly suggest that you get to it as soon as possible. It may seem overwhelming so it may make sense to start slowly. Either way it is in your best interest to start.
We are here to help you and would like to encourage you to come in for a complimentary retirement review. We can dive more deeply into the four topics covered in this post and get your on your way to a successful retirement.