Retirement Planning: How to Plan Your Financial Journey The Motley Fool

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Financial Planning for Retirement

Experts advise that you may need as much as 80 percent of your pre-retirement income to continue your current standard of living. Put at least five years of living expenses into very liquid, very safe assets, then invest the rest as you did when you were working. This shift to safety can creep up on you, so make sure your plan anticipates a slow roll of longer-term risky investments into shorter-term safe ones as the years go by. The best way to deal with your retirement fears is to face them head on.

Learn How Retirement Income Is Taxed

You need to make sure that you are comfortable with the risks being taken in your portfolio and know what is necessary and what is a luxury. “Don’t be a ‘micromanager’ who reacts to daily market noise,” advises Craig L. Israelsen, Ph.D., designer of 7Twelve Portfolio in Springville, Utah. Retirement plans evolve through the years, which means portfolios should be rebalanced and estate plans updated as needed.

  • Catch-up contributions of $3,500 allow employees 50 or older to bump that limit up to $19,000.
  • You are limited to the same annual limit, but there are no income limitations as with a Roth IRA.
  • Let’s face it, the typical investor is probably unaware of the many intricacies involved in preparing for retirement.
  • Your next act can include another successful business, significant charitable work, or personal relationship successes.

Once you’ve answered the above questions then you can decide on the step in Another important factor affecting how much money you’ll need in retirement is the cost of living in the area where you want to live as a senior citizen. If you’re a parent that wants to achieve all of these and more and you’ve been wondering about how you can write a realistic financial plan for retirement then you’re in the right place.

Roth IRAs and Roth 401s are generally the most popular, but you can also consider a Roth 403 plan, Roth 457 plan, or a Roth solo 401. Investing in an HSA also enables you to withdraw money, in retirement or at any age, for qualifying medical expenses without paying income tax on the withdrawal. Dana Anspach is a Certified Financial Planner and an expert on investing and retirement planning. She is the founder and CEO of Sensible Money, a fee-only financial planning and investment firm. Your retirement savings can take unexpected hits from not only personal circumstances but also major economic and market changes.

How to Open a “my Social Security” Account

Savings, money market and CD accounts are also taxable but they can be good to have for keeping some of your retirement savings liquid. Once you reach retirement age and begin taking distributions, taxes become a big problem. Most of your retirement accounts are taxed as ordinary income tax.

Time to Upgrade!

Second, make sure to diversify your investmentsso that you’re not putting all your eggs in one basket. And finally, take advantage of tax incentives such as IRA contributions and Roth IRAs if you qualify. Deciding what percentage of your annual income to save for retirement is one of the big decisions you need to make when planning. If you’re just starting out on your retirement planning journey, saving any amount is a great way to begin. Just keep in mind that you’ll need to keep increasing your contributions as you grow older. If your annual income isn’t too high, a Roth IRA is one of the best retirement accounts available.

Fees on active funds have come down due to the pressure from index funds and ETFs. According to the Investment Company Institute, the average equity mutual fund fee is now roughly 0.5%. But most index ETFs and index mutual funds remain cheaper — a few ETFs even launched in recent years with no fees at all. First of all, there are different kinds of bonds with different risk levels. Generally, Treasury bonds, which are fixed income securities issued by the federal government, have little risk of defaulting.

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