How To Create Secure Retirement Plan
Retirement planning is something that an individual starts thinking about at some point in his/her life. If done correctly, it may provide you with a very comfortable retirement but if done wrong, may prove to be very threatening.
The goals of retirement planning are to achieve financial independence at the retirement age. Retirement plans are offered by various financial institutions and insurance companies. These are often bundled projects, offering the benefits of both insurance and investments. Instead of working at a single large company for most of the life and then counting on a pension for retirement days, people have started self-saving and investment planning on their own.
Typically, there are phases with the key aspects of good planning in each phase explained below.
The Accumulation Phase:
During the accumulation phase there are generally four principals achieved during this timeline, between the ages of 30-55.
- Increased Income - As you begin to establish a career and grow professionally, you experience an increase in income.
- Investing for the Future – This is the time you should save at least 10% of your gross income and invest for the future.
- Desire for Growth – You should be looking for ways to grow and protect your savings.
- Taking Risk – Your retirement years are ahead of you and you have time to take calculated risk with your retirement saving to achieve your desired goals.
You may work for a large company that offers a 401K. There are certain benefits to a 401(k) that are explained below:
- Your employer has the option to match what you invest, i.e. if you invest 6% of your income to a 401(k) plan, your employer may match that by investing the equivalent amount and thereby, giving you a 6% bonus.
- It allows you to earn higher interest rates as compared to a savings account, although this is not a risk-free account.
- The funds in the account are not subject to income tax until you withdraw them.
- Since the contribution is taken from the total income, it provides an immediate tax break. You might want to consider contributing a higher margin from your paycheck into retirement plan account if you want to lower your tax liability.
- Once in retirement, a 401(k) rollover may be necessary. This allows you to ‘roll’ a 401(k) into an IRA and take control over your money and have more flexibility.
Determine your Contribution:
Make sure that the amount you are contributing into an employees’ retirement savings and other annuities or retirement strategies are optimum and you are aware of market fluctuations and volatility.
The Pre-Retirement Phase:
This phase is the last years of the accumulation phase and should start when you are around 55 years of age or so. Start understanding about the retirement benefits, social security and basics of Medicare, just to be prepared for anything that comes your way
The Preservation Phase of Retirement
This is the time to assess how well your retirement plans have been working because now you are ready to start using them. You should be able to handle all the distributions of your money among funds comfortably.
Even if you are completely healthy, start thinking of the things you would need from family to do if your health declines significantly. You and your spouse should have a plan in place to take care of each other. Start having discussions and creating a plan in the event your family may have to take control of your decision making. As always, it’s better to be prepared.
You should be fully secured at this point by a strong, safe retirement plan to ensure a rewarding life with your family by your side. During this phase you should be thinking about your fixed income and your ability to maintain your lifestyle. The safety of your retirement assets is essential. Creating safety using guaranteed products and strategies such as a lifetime income annuity, long-term care insurance or life insurance will help you reach these goals.
An annuity is not as scary as it sounds. An annuity is a process in which you deposit a lump sum to an insurance company and the company pays you a regular income payment every month, quarter, half-year or annually depending on the option chosen by you, the annuitant. The income from the income annuity is higher as compared to other investments since it pairs up principal amount and interest. An immediate income annuity may qualify for favorable tax treatments. This type of annuity is preferred by retirees who require higher income and prefer a safe, guaranteed stream of income.
You can have this planning done with the help of professionals.
Contact Palm Beach Tax Group and we can do all your retirement planning for you.
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