Tuesday, January 15, 2013

Will you really be able to retire?

For many Americans today, retirement can seem like a far-off dream. Astronomical health care costs coupled with much longer life expectancies have made it almost impossible to retire without having some sort of additional income aside from social security and pensions. Compounding the problem is that medicare doesn’t necessarily cover all health-related expenses. The limits placed on medicare coverage can cause serious financial problems for seniors on a fixed income, so where do you stand? Are you prepared for retirement in 30, 20, 10 or 5 years? If you’re like most Americans, you’re probably nowhere near as ready as you think you are.

Being ready for retirement is more than just a matter of savings, though. Having a good handle on your debt, being healthy, and keeping your major expenses in check all play a vital role in ensuring that you can retire at all, much less retire comfortably. So, are you ready? Use these tips to begin planning for your golden years so they don’t end up being more like leaden years.

Forty years from retirement: At 25 years old, if you haven’t already begun to save for retirement, you need to do so. Since you’ve probably just graduated from college, concentrate as much of your extra income toward paying off student loans and credit card debt as you can. This is the key to being debt-free later in life. While student loans are low-interest loans and typically considered “good debt,” carrying them for 20-30 years isn’t unheard of, and isn’t ideal. You’ll save a ton on interest later on if you overpay your balances now. Getting credit cards paid off should be self-explanatory. Choose a 401-k strategy that has moderately high levels of risk since you’ll be better able to weather major turns in the market. 

Thirty years from retirement: At 35 years old, you’ve still got plenty of time to leave your investments in relatively risky stocks that will give you the greatest return. At 35, though, it’s time to start thinking about a house. Take advantage of low points in the market so that even with your 30-year mortgage, which you’ll pay off just in time to turn sixty-five, won’t be burdensome immediately before and after your retirement.

Twenty years from retirement: At 45, it’s time to start re-evaluating your 401-k and start moving your risky stock to more conservative stock if you haven’t already. 

Ten years from retirement: Ten years out from retiring, it’s time to start paring back your spending and bumping up your 401-k contributions. For right now, the maximum contribution you can make that’s tax-deferred is $17,500 per year. Once you’re over 50 years old, though, you can make catch-up contributions of up to $5,500 per year. Max both of these out if you can. Of course, the $17,500 contribution limit will likely go up every so often, so stay on the ball about changes in those limits so you can put away as much as possible. 

For many Americans, retirement is a dream that may never come true. It’s unfortunate that that is the world in which we live, but it does reinforce the old idea of taking care of number one, and in an atypically good way. After all, no one’s going to take care of you in your retirement if you don’t take care of yourself. While it may be tough to think of living today for what might not be any more than 25 years or so before your life ends, there is a wisdom behind ensuring that those years are filled with happy memories, excellent experiences, and enough joy to inspire your children and grandchildren. Sort of tough to do that when you have to be at work every night at 5, though, isn’t it?

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