Retirement Planning Terms You Should Know

Important Aspects of Retirement Planning

Planning for retirement can be complex, overwhelming and scary. Most people avoid discussing retirement and hope that they have enough saved without doing an assessment and working with a financial advisor to set retirement goals. The best way to save for retirement depends on individuals' financial situation, comfort level and proper guidance. Retirement planning will help cover all of your monthly bills and expenses and a few wants during your retirement years so you don’t have to go to back to work if you don’t want to. Unfortunately, According to a study by Bankrate one third of Americans have nothing saved for retirement.

Retiring at the right time is as important as saving for retirement. Choosing the right time to retire can save you thousands of dollars. Location is just as important when planning for retirement. Where you will live, the lifestyle you want to have, your monthly expenses, cost of living, health care costs, and what age you want to retire and keep components of develop retirement goals.

Retirement Planning Terms You Should Know

1. Asset Allocation – a strategy that spreads investments over a variety of asset categories, such as equities, cash, bonds, etc. The method you allocate your assets depends on a number of factors, including your risk tolerance and your desired rate of return. Proper asset allocation can help you manage risk and volatility.
2. Catch-up - If you are 50 or older you can make contributions to your IRA or employer-sponsored retirement plan above the normal contribution limit. This is designed to help pre-retirees make up any retirement savings shortfall by increasing the amount that can be saved prior to retirement. The amount that can be contributed depends on the retirement plan and the year you make the contribution.
3. Distribution - a withdrawal of money from a retirement savings account, if you take money out before age 59½ you will have to pay penalties and/or taxes on the money depending on the retirement plan.
4. Diversify/diversification - a risk management technique that allocates funds to a variety of investments within a portfolio. Investing in different kinds of investments will yield higher returns and present a lower risk.  Re-allocate investments to at least three different areas to minimize losses. Allocations do not have to be equal distributions, 33%, 33%, 33%, mix and match distributions.
5. IRA (Individual Retirement Account) - retirement accounts with tax advantages. There are two types of IRAs, a traditional IRA which is tax deferred and provides a tax deduction, and a Roth IRA which is tax-free.  Your investment grows tax-free in an IRA until you begin making withdrawals, usually after age 59½. If you take money out before age 59½ you will have to pay penalties and taxes on the money.

Why You Need to Know These Terms

Understanding these terms can be crucial to your future. The lack of understanding of basic retirement planning terms can cause miscommunication or cause you to make bad financial decisions that could derail your retirement goals.  It’s like taking your car to a mechanic for repairs - your car is fixed but you can’t use it (drive it) because you don’t know how to count money to pay for it.

An experienced financial adviser should explain retirement planning terms to clients.  However, if you have not selected a financial adviser yet or do not understand the terms used by your financial advisor – you may feel like a deer in headlights.  Grasping these terms will help you to make sound decisions regarding your retirement and help you become an educated consumer.

How to Plan for Retirement

1. Start early. Start saving for retirement with your first job. If you get your first job at 16 start planning for retirement then. Save as much as you can while you are single or don’t have any children.  It is much more difficult to save for retirement when a life change occurs such as children, unemployment, purchasing a home, planning for college, etc. Contribute at least 10% each month towards your retirement. Contribute more when you are able to do so.
2. Start with your company's 401K. Do research to see what plan has the best options to help you achieve your retirement goals.
3. Diversify. Control your risks by investing in various mutual funds that are a combination or low, medium and high risk to limit your losses.
4. Compound interest. The sooner you start saving for retirement, the more money you will be able to save due to compound interest. This allows you to earn money on the money you already invested.
5. Know how much. Once you start saving for retirement, you need to set retirement goals.  You will need at least 70 – 80% of your income during retirement. To reach this you will need to save for at least 25 to 30 years or 20 - 30 times you current salary depending on your salary and monthly expenses.  You should adjust your contributions with each salary increase or increase contributions on a yearly basis.
6. Postpone.  Postpone retirement as long as possible or do a phased retirement by working fewer hours and gradually retire.
7. Downsize. Scale back expenses at least 3 to 5 years prior to your retirement date to reduce spending by 30% - 50%.  Trade in a luxury car for a cheaper model or move to a smaller home. Buy more needs vs. wants.  Delay large purchases until you save enough to cover the cost.
8. Life. Consider where you want to live, what lifestyle you want to have, your health condition, cost of living, and other expenses during retirement and plan for those items. Know what your yearly income will be when you retire.
9. Insure. Ensure you have adequate insurance coverage such as life, health, dental, home, auto, fire, flood, disability, long-term care, homeowners or renters’ or business insurance. Insurance is a form of protection against loss, harm, damage or theft and saves you money in the future.  Insurance should provide enough to reimburse for loss or damages. Review policies yearly and make adjustments as necessary. Keep beneficiaries up-to-date.
10. Delay Benefits. Delay social security or other benefits.  Draw your social security benefit or other benefits at full retirement age to get the maximum amount you are entitled to receive.
11. Focus on long term growth. You have to be willing to leave your money untouched for at least 5 to 10 years. Otherwise you won't be able to see the benefits of your money growing.

Marvelous Ways to Plan for Retirement When It’s Around the Corner

                                                 

If you haven’t saved enough for your retirement, why not? Whatever method you choose it is a known fact that unless you are born in a wealthy family you will have to save for retirement. This translates into contributing to a retirement account for a minimum of 20 years depending on your salary but more likely for 25 to 30 years or more on a consistent basis. The key to planning for retirement is to plan. 

According to the US Census Bureau the average savings of a 50 year old is $43,797. Americans older than 50 purchase 77% of all prescription drugs, 61% of all over-the-counter drugs, 47% of all auto sales and 80% of all luxury travel.  These are alarming statistics and reinforce the need to plan for retirement.

No matter what your age you should put some money aside for your retirement even if you have to get a job after retirement which is better than having no money saved at all.  Many people do not save enough and end up having to work well past their desired retirement age or have to get part-time jobs because social security is not enough to cover all of their expenses. Don't panic and get overwhelmed by the media, fear, anxiety and nervousness of those around you. Don’t let emotions cause you to make bad decisions. If it sounds too good to be true it is. Avoid letting someone invest money for you that is not a licensed professional. Here are 19 marvelous ways to help you plan for retirement.

Debt

1. Pay off car loans or mortgages prior to retirement.
2. Get current on late payments.  Pay off collection accounts, judgments, tax liens, then pay off everything else because these items impact your credit score the most.
3. Keep debt at 15% or less of your monthly income after taxes. Avoid making large purchases 1 to 5 years prior to retirement unless you know you will be able to pay the debt prior to retirement.

General

1. Avoid risky products and services such as a reverse mortgage, home equity loan or line of credit, balance transfers, rent-to-own products and payday loans.
2. Verify everything you hear or read to ensure you are getting accurate information especially when purchasing a service or getting professional advice.

Pre-Retirement

1. Ensure you have adequate coverage for health, life, disability and long-term care. Review coverage needs annually and consider coverage needed during retirement.
2. Perform estate planning and create a will and trust even if you are not wealthy.
3. Increase retirement contributions with each salary increase.
4. Save at least 10-20% towards retirement each month.
5. Invest in tax free investments. Save money in a tax free ROTH IRA account to prevent paying taxes during retirement. Maximize tax deductions and advantages.
6. Delay social security or other benefits.  Draw your social security benefit or other benefits at full retirement age to get the maximum amount you are entitled to receive. 
7. Consider moving to a less expensive area or income tax free states such as Florida or Nevada, Alaska, South Dakota, Texas, Washington, Wyoming, New Hampshire and Tennessee.
8. Consider where you want to live, what lifestyle you want to have, your health condition, cost of living, and other expenses during retirement and plan for those items.

Savings

1. Create an emergency fund with enough money to cover monthly bills and expenses for 12 months.
2. Create a home repair fund with enough money to cover home repairs for 6-12 months.

Spending

1. Create a budget or spending plan to track spending daily, weekly or monthly so you always have a record of how much you earn, spend and owe.
2. Downsize your lifestyle - trade in a luxury car for a cheaper model or move to a smaller home.
3. Buy more needs vs. wants.  Delay large purchases until you save enough to cover the cost.
4. Scale back expenses at least 1 to 5 years prior to your retirement date to reduce spending by 30%. Don’t buy things you don’t need or just because something is on sale.

Retirement Tips

This is National Retirement Week. Have you saved enough for your retirement? If not, why? There are many ways to plan for retirement. Whatever method you choose it is a known fact that unless you are born in a wealthy family you will have to save for retirement. If you retire at age 65 you could live another 10-20 years which means you will need on average $1,000,000 to $1,600,000 depending on your salary.

This translates into contributing to a retirement account for a minimum of 20 years depending on your salary but more likely for 25 to 30 years or more on a consistent basis. The key to planning for retirement is to start planning as soon as your get your first job, planning early eliminates the need to play catch-up in your later years in life.

However, it is never too late to plan for retirement. No matter what your age you should put some money aside for your retirement even if you have to get a job after retirement which is better than having no money saved at all. Many people do not save enough and end up having to work well past their desired retirement age or have to get part-time jobs because social security is not enough to cover all of their expenses. Don't panic and get overwhelmed by the media, fear, anxiety and nervousness of those around you. Don’t let emotions cause you to make bad decisions. If it sounds too good to be true it is. Don’t let someone invest money for you that is not a licensed financial advisor.

How to Save for Retirement:
1. CDs/Bonds/Mutual Funds
2. Pay down debt
3. Contribute extra to your 401(k) or other retirement account
4. The motto is "buy low, sell high" is truly appropriate during an economic crisis. This is a great time to buy stocks or to invest in a mutual fund. When the market bounces back you will achieve great gains.
5. Sign up for matching employer contributions (free money)
6. Increase retirement contributions with each salary increase
7. Save at least 10-20% towards retirement
8. Scale back expenses within at least 1 to 5 years prior to your retirement date
9. Don't depend on your spouse's retirement account because your spouse may not have saved enough money for retirement
10. Review allocations yearly to make any necessary adjustments. Check your statement for any errors and notify your financial planner immediately.

Diversify at a minimum:
Pre-retirement invest 60% stocks, 40% bonds/cash; near retirement (5-10 years) invest 40% stocks, 60% bonds/cash; during retirement invest 20% stocks, 80% bonds/cash.

What to invest in:
1. Invest in emerging market funds (foreign markets)
2. Equities (mutual funds) or other items that return a dividend or capital gains
3. Pharmaceuticals
4. Oil and petroleum
5. Commodities (corn, soy, wheat, coffee beans, petroleum, copper, coal, salt, sugar, soy beans, aluminum, rice, gold, silver, palladium, platinum, electricity, gas, oil, etc.) when the prices are low.
6. Real estate, if the home’s value is low it can continue to decrease but over a long period of time you will gain equity and can make a profit
7. Defensive stocks don’t depend on economic prosperity such as the food and beverage industry, manufacturing companies such as Philip Morris, Proctor & Gamble and alcohol and tobacco
8. Under-priced stocks (offer price is lower than price of the first trade, however they carry a higher risk factor because they may not rise in the future) – IPO’s, airline stocks, small cap stocks, etc.
9. Utility stocks – water, gas, electric, telephone companies
10. Green technology and green energy stocks for long-term gains such as Canon, Green Mountain Coffee Roasters, Nike, Whole Foods, Google, etc.
11. Invest in Dividend Reinvestment Plan (DRIPs) to offset any losses you may have experienced or use it as an easy way to start investing.

General Retirement Advice

It is estimated you will need a minimum of $1,000,000 to cover your monthly expenses during your retirement years. The average Americans live 10-20 years after retirement. You will need at least 80% of your income during retirement.

If you are stressed and anxious reduce your investments in stocks and bonds, however when the market returns you will lose money when moving your investments back to stocks and bonds because the prices will be higher. Investing in individual stocks on your own is risky. Consult a financial advisor to ensure you minimize losses and maximize gains. Here are some general retirement tips to ensure you enjoy your retirement.

Diversify at a minimum:
Pre-retirement invest 60% stocks, 40% bonds/cash; near retirement (5-10 years) invest 40% stocks, 60% bonds/cash; during retirement invest 20% stocks, 80% bonds/cash.

What to invest in:
1. Invest in emerging market funds (foreign markets)
2. Equities (mutual funds) or other items that return a dividend or capital gains
3. Pharmaceuticals
4. Oil and petroleum
5. Commodities (corn, soy, wheat, coffee beans, petroleum, copper, coal, salt, sugar, soy beans, aluminum, rice, gold, silver, palladium, platinum, electricity, gas, oil, etc.). However some commodities are overpriced right now and should only be invested in when the prices are low.
6. Bonds (corporate or treasury)
7. Real estate, however keep in mind if the price is low it can continue to decrease but over a long period of time you will gain equity and can make a profit
8. Defensive stocks (don’t depend on economic prosperity) - food and beverage industry, manufacturing companies such as Philip Morris, Proctor & Gamble, alcohol and tobacco
9. Under-priced stocks (offer price is lower than price of the first trade, however they carry a higher risk factor because they may not rise in the future) – IPO’s, airline stocks, small cap stocks, etc.
10. Money Market Accounts/CDs – use these for an emergency fund savings account for unexpected expenses
11. Utility stocks – water, gas, electric, telephone companies
12. Green technology and green energy stocks for long-term gains such as Canon, Green Mountain Coffee Roasters, Nike, Whole Foods, Google, etc.

How to Save:
1. CDs
2. Money Market Accounts (MMAs)
3. Bonds
4. Online Savings Accounts
a. CD current interest rates nationwide go up to 1.27% (AloStar Bank of Commerce NR for $1,000 minimum balance) and Money Market Accounts rates nationwide go up to 1.05% (First Trade Union Bank for $1,000 minimum balance). Online Savings account interest rates go up to 1.15% (Discover Bank High Yield Savings Account for $500 minimum balance).
5. Create an emergency fund to cover monthly bills and expenses for nine to twelve months.
6. Pay down debt
7. If you receive government benefits/checks think of at least 1 additional way to generate additional income if your check is last or does not arrive at all due to the debt ceiling
8. Contribute extra to your 401(k) or other retirement type account now. Money you invest now can buy more fund shares which will provide you with additional gains when the market goes back up

Retirement and You

Last week was designated as National Savings Retirement Week to help bring awareness to the need to plan for retirement. Many Americans still do not save enough for retirement and some do understand the importance of saving for retirement.

According to a 2009 EBRI a study of employees: 43% of workers said they have less than $10,000 in savings, while 27% of workers said they had less than $1,000. According to the FDIC: 97% of Americans will be dependent to some degree on family, friends or the government in retirement; a 65 year-old couple retiring today has a 63% chance that one of them will live to 90 years old; a 65 year-old couple retiring today will need approximately $240,000 to cover just medical expenses even with Medicare assistance.

You will need at least 60-70% of your salary during retirement. You should plan to save enough in your retirement account to cover living expenses for at least 20 years. Here is a retirement checklist to use when saving for retirement.

1. Do you have a retirement account?
2. Have you contacted a professional to map out your retirement plan and goals?
3. Do you know your retirement account balance?
4. Do you check your quarterly retirement statement?
5. Is your retirement portfolio diversified?
6. Do you know where you will live, what age you want to retire and the lifestyle you want to live during retirement?
7. Have you determined what costly expenses you will need during retirement (healthcare, prescriptions, etc.)?
8. Have you created an estimated budget for retirement?
9. Will you have enough life, health, disability and long-term care insurance?
10. Do you plan to pay off your mortgage and any other large debts prior to retirement? If not, how do you plan to pay for those expenses?
11. Do you want to be fully retired or work part-time?
12. Will you be eligible for social security when you retire?
13. Is your beneficiary information is up-to-date?

Here are 6 ways to help you prepare for retirement and increase your retirement savings.

a) Don't panic. Don’t make decisions based on emotions or get overwhelmed by the media, fear, anxiety and nervousness of those around you. Stay calm and follow the plan you have setup with your financial planner. Don't torture yourself by checking the stock market everyday or checking your retirement account balance every week or every month.

b) Review. Review your financial goals with your financial planner at least once a year to ensure you are on track to meet your goals. Also, check your statement for any errors and notify your financial planner immediately.

c) Time. Your money cannot grow if you take it out too soon. It takes a minimum of 7 years to see a significant return on your investment so leave your money in your account.

d) Diversify. If you have all of your investment in one area, re-allocate your investments to at least 3 areas to minimize losses.

e)DRIPs. To offset any losses you may have experienced you can purchase a Dividend Reinvestment Plan (DRIP) or use it as an easy way to start investing.

f) Buy now. The motto is "buy low, sell high" is very appropriate during a recession. This is a great time to buy stocks or to invest in a mutual fund. When the market bounces back you will have achieved great gains.

13 Easy Tips to Help You Plan for Retirement

There are many ways to plan for retirement. Some people contribute to an employer-sponsored retirement plan or 401K, some people are self-employed and contribute to a Self-employed plan (SEP) and some employers contribute money to a retirement account for employees without a required employee contribution.

Whatever method you choose it is a known fact that unless you are born in a wealthy family you will have to save for retirement. If you are in good health when you retire at age 65 you could live another 10-20 years which means you will need on average $1,000,000 to $1,600,000 depending on your salary.

This translates into contributing to a retirement account for a minimum of 20 years depending on your salary but more likely for 25 to 30 years on a consistent basis. The key to planning for retirement is to start planning as soon as your get your first job, planning early eliminates the need to play catch-up in your later years in life.

However, it is never too late to plan for retirement. No matter what your age you should put some money aside for your retirement even if you have to get a job after retirement which is better than having no money saved at all. Many people do not save enough for retirement and end up having to work well past their desired retirement age or have to get part-time jobs because social security is not enough to cover all of their expenses. Here are 13 tips on how to plan for retirement.

1. Sign up for matching contributions (free money)

2. Increase retirement contributions with each salary increase

3. Save at least 10-20% towards retirement

4. Purchase health, life and disability insurance

5. Pay mortgage off early (bi-weekly, principal) before you retire

6. Keep debt at 15% of your monthly income

7. Need 70%-80% of your income at retirement

8. Setup protections to protect your retirement account(s) such as establishing a will, trust, investing in tax free accounts such as Roth IRA or purchasing an annuity.

9. Establish goals for your retirement years

10. Create an emergency fund to cover expenses for 9-12 months

11. Consultant a financial advisor

12. Don't depend on your spouse's retirement account because your spouse may not have saved enough money for retirement

13. Scale back expenses within at least one year to five years of your retirement date