Early & Often
Start making your retirement dream a reality
June 8, 2007
By Jennifer Campion
-
Email This Post
Print this article!
Digg
del.icio.us
Mahalo
StumbleUpon
YahooMyWeb
Ahh … retirement. When you close your eyes and envision your life after many years of hard work, what do you see? Is it relaxing by the beach in a vacation home? Do you see yourself traveling to the faraway destinations you’ve always dreamed of and never had the time to visit? Will you spend more time with family and friends? Perhaps take up a new hobby such as tennis or golf?
Retirement is a time many of us look forward to, as it is often associated with freedom and independence. It’s supposed to be a time in our lives that allows us to do as we please, on our own terms. No more working long days, no more deadlines, no more paychecks. … No more paychecks?! Open your eyes, that’s a wake-up call!
When we decide to leave our place of employment and venture into our retirement years, we need a plan. How will we fund our years of enjoyment? Many of us have spent more time in our lives planning family vacations than we have our retirement strategy.
When we go on vacation, we decide when we will leave and when we will return. We evaluate our means of travel; whether we drive, fly or take a train. Where will we stay, a fancy hotel or the house of a friend or relative? What will we do? All of these questions help us determine our expenses. Once we know those, we can create a budget. Our budget determines our vacation, whether extravagant or simple.
Now, have you asked yourself similar questions when planning your retirement? Have you envisioned your retirement as an extended vacation? Have you planned for it? How much will you need to save? Are you saving enough? How much will you have when you are ready to take the journey? Most important, will the savings last throughout your retirement years?
Planning for retirement is especially important for women. Women tend to outlive men by at least seven years. The longer we are in retirement, the more funds we will need to sustain ourselves. If we do not plan accordingly, we may find ourselves working longer than we envisioned.
In our planning phase, it is important to account for all of our income, which may include rental incomes, spousal income, pensions and Social Security, to name a few. Do you feel you need to save more? Consider the retirement account options available to you.
If your employer offers a retirement plan, it is to your advantage to take part. Try to contribute as much as you can. Contributions are on a pre-tax basis and are easily made through a payroll deduction. This gives you an immediate tax savings. Many employers will make contributions to your account, either through a match or profit sharing. The combination of the tax savings and the additional contribution from your employer will result in an immediate return, regardless of market conditions.
Are you self-employed? Consider a SEP or a Solo 401(k) Plan. A SEP, Simplified Employee Pension, will allow your business to contribute a percentage of your compensation on your behalf. A newer plan, the Solo 401(k) is a great option for self-employed individuals without employees. The Solo 401(k) plan allows an individual to benefit from contributions made both as an employee and an employer — allowing you to defer more money, faster, than you would with a SEP. In addition, the Solo 401(k) allows for loans, unlike a SEP.
A common retirement savings vehicle is the IRA, or Individual Retirement Account. The IRA is available in the traditional form or the Roth. The traditional IRA may allow you to deduct contributions from your taxes. You will want to consult with your tax adviser. The contributions and earnings grow within the account tax-free until they are withdrawn.
The Roth IRA is a retirement savings account that allows after-tax contributions and earnings to grow tax-deferred and — under current legislation — to be withdrawn tax-free. You will need to consult with your tax adviser about the qualifications for contributing to each IRA, and about the deductibility of the traditional IRA for your specific situation.
Now when you close your eyes and envision your retirement, think about how you will get there. Plan your journey. Think about what you would like to do and what it might cost. Think about where you will live, and if you will still owe money on your home. Will you work? Evaluate your sources of income.
Once you have a good idea of your retirement, go and meet with a financial professional who is trained to help you match your thoughts and ideas with a plan that you can follow. Many financial professionals will meet with you on a complimentary basis, which allows you to “interview” a few and decide whom you would like to work with.
Without a roadmap to retirement, it will be hard to get to your destination. Plan to make your retirement dream a reality!
Jennifer Campion is a financial planning specialist with Smith Barney in Baltimore. This article was written by Jennifer Campion and does not reflect the views of Smith Barney or its affiliates. Visit Jennifer’s website at www.fc.smithbarney.com/jennifercampion.
