It's never too early to plan for your retirement. Whether you're in your 20s or your 50s, financial advisor Kris Miller says it isn't too late to start saving for your retirement. Few people think about retirement when they're just out of high school or college, but according to Miller, this is the ideal time to make retirement plans. "Retirement planning isn't just for seniors. Start learning early and you will find that a little planning goes a long way," advises Miller, author of, Ready For PREtirement? Plan Retirement Early So Your Money Is There When You Need it.
Step One - Cut Expenses and Bank the Savings
It's easier than you might think to start saving money for your future. You can begin small, such as cutting back on a few unnecessary expenses.
- Skip that espresso once a week and make coffee at home instead of stopping by your favorite java joint.
- Go without that takeout or dining out once a month. Instead, fix a soup and sandwich dinner and bank the money into your retirement account.
- Resell clothes you and family members no longer wear.
- Take advantage of eBay and consignment shops to also sell household items, toys, books and other items as well as make purchases.
- Host a yard sale, and the profits can go into your fund.
- Bank money gifts you receive for birthdays, holidays and anniversaries into your retirement fund.
- Make it a rule to only buy clothes, shoes and other items that are on sale.
- Use grocery coupons.
- Take advantage of cash backs and rebates.
Don't neglect to put all the money you save by cutting expenses into your retirement fund. Sometimes it's tempting to spend that money on other things. If you're disciplined in these small cuts in expenses, then you'll create a steady stream of savings to enjoy when you retire.
Step Two - Set Up 401(k)s and IRAs
Set-up a 401(k) and an IRA (Individual Retirement Account). You may already have a 401(k), but are you utilizing it to the fullest? Take a page out of Miller's book and max out your 401(k). Miller advises those working for employers who have a percentage match for employee 401 (k)s to take advantage of this company benefit. She points out that this is "free money," so take as much as you can.
However, don't put all your eggs into one basket. In addition to your savings account and 401 (k), Miller recommends that you consider opening a Roth IRA. When you cash it in, no taxes are owed on the money you put into the account (earned income); you only pay taxes on the interest earned - unlike a 401 (k).
Step Three - Plan for Emergencies
There are several things you can do to create an emergency fund that will see you and your family through unexpected interruptions in your income. Accidents happen that can cause you to miss work and lose income. If you plan now, you won't have to worry about paying bills and continuing your current lifestyle. Some of the things you can do to plan for an emergency include:
Create an Emergency Fund
Financial experts recommend that you save enough money to cover all of your bills for at least three to six months. This is a vital part of any emergency plan should you have an accident, experience extended illness or suffer a job loss that puts you out of work for an extended time.
Companies typically offer some form of disability insurance. Many companies pay for short-term disability insurance and then offer employees the option of purchasing long-term disability insurance for a nominal monthly premium. These insurances typically cover 66.6% of your earned income.
Not many people consider food as part of a financial emergency plan, but if you have several months worth of food stored in your pantry, you won't need to worry about buying groceries should you have a short or long-term financial emergency.
Step Four - Estate Planning
The next step in your retirement planning is less pleasant for most people, but is imperative if you wish to protect yourself and your assets. An estate attorney, planner or retirement and living trust expert like Kris Miller can walk you through the various directives and issues you should decide on now. This is especially true if you own a home. If you have stocks, bonds and other assets, you need to protect these as well.
Provide for your family and avoid unnecessary confusion and decisions by doing the following:
- Create a will: This is a must for every person. If you don't have a will, your assets can be tied up in probate court. Most states assume control over the estate by the court appointing an estate administrator to decide on how your assets are distributed. Take control now to ensure your family doesn't suffer.
- Create a living trust: Reduces estate taxes, provides long-term property management, avoid probate. As long as you live, you control this trust.
- Create a Power of Attorney: This gives another person the power to act on your behalf to oversee your assets and your health.
- Term Life Insurance: Miller advises buying an amount that gives a minimum coverage for "60% of your current income."
In addition to these important documents, Miller recommends purchasing "long-term care insurance, as 7 out 10 people end up in a nursing home and the cost is $170-$350 a day. Imagine what it will be 20 years from now."
Retirement Planning at 50
Many people are intimidated by the thought of planning for retirement or believe they have waited too long, and it's just too late to start. Some of the best retirement investments can be made now even if you're in your 50s. It's not too late! Miller shares helpful insight about the myth of age, "if I was 34-54 I would get the IUL (Index Universal Life) to get that money 20-30 years from now."
For those in their 50s, she advises buying Equity Index Annuities (tax-deferred annuities). "They are safe and not one person lost one dollar in the great depression. Some of the companies will pay a 10-12% bonus on new money and a 6.5% interest compounded for income, you can never outlive." There is an early withdrawal penalty that differs from product to product, so make sure you fully understand what you're purchasing.