All About

Planning retirements is usually done in a long range period. Not just in a specific time when the thought hits you. That is how crucial it is a necessity. In other words, you have to take this matter seriously.

Though you may not think of it while you in your are twenties or thirties, it is best that you are never too late when it comes to planning retirements. As the realization may strike you when you are in your late forties or early fifties, it will b never too late as you know what to do then. Here are ways or tips that will help you make a long range retirement plan.

Know where you are

As of the moment, this is your best chance of knowing where you are heading when retirement comes into play. Collect all financial papers you have with you. Social security, benefit plans, veteran’s plans, etc. List down your assets as well as your liabilities. This will give a head start.

What are your goals for retirement?

Make sure you know what your retirement goals are. This will help you determine how much savings you will need once retirement sets in. In other words, this will give you an overall overview of how much you will need in the future.

How will you achieve your retirement goals?

Putting into action the things you have so carefully planned yourself is the last thing you will need or things o move like clockwork. In short, you have to invest to reach these goals. If possible, do not touch them and just watch your income grow.

Having an insight regarding your financial status is the key here. It will make planning easier, it will help you achieve your own goals. Investing should be done regularly. Further, it is best not to create more liabilities than assets.

Retirements have to be planned. It is not much of a responsibility in itself but a necessity if we have to make a closer look at it. One of these is budgeting after retirement. This should be regarded as part of the retiring process itself. But providing enough time for this will carve an easy life in the future.

If given an overview, it is always undeniable that budgeting can be a headache in itself. Truth be told, there is no other way in which a simpler plan could be done. Everything is in the way you handle it. Discipline and a clear goal to live happily after retirement, as they all say it. Below are a series of steps in which to give you an idea how to plan your budgeting after retirement.

Plan your future. As of now, you are the only one who knows where you stand when it comes to your budgeting. Plan on how will get to your goals and achieve them. In addition, you may provide yourself an idea on how long you will live. Smoking and other such vices may provide a factor on how long you can maintain a certain budget.

Investing diversity. Of course, Social Security is not enough if you are opting for financial sufficiency. Do not just stick to it. Consider your 401k plan. One financial source is never enough. Look for several ways to make it grow.

Consider working after retiring. Two thirds of Americans consider working on a kind of job that will allow them to earn money despite their retired status. However, this may affect your pension and the tax that you will have to pay.

Be aware of what you owe and what you own. Assets and liabilities perform a very significant role in planning our budgets. It is best that you calculate it always. So gather your financial papers and deduct the total assets you have with the total liabilities you owe. With that, you are given a head start whether you have to do better or relax a bit.

Bounce your last check or leave an inheritance. This is one of the best ways for you to be assured that you indeed have done good budgeting.

Families in the United States nowadays are sometimes forced to have both parents work just to gain that sense of prosperity. However, some families remain insistent on having either one of the parents, usually the husband, work while the spouse remains at home taking care of the children. There is nothing wrong with both scenarios as long as families are able to strike a balance between gaining success in a career and developing filial relationships. However, families with only one parent working usually struggle in earning enough income for their future, but employee can actually have their stay-at-home spouses avail of an IRA. Here are the requirements and procedures in setting up a spousal IRA.

Meet the eligibility requirements - In order for your spouse to become qualified for a spousal IRA, you must be legally married at the end of the tax year and have filed a joint income tax return. You must also be employed and have an net income costing at least the amount you contribute to the IRA.

Choose between traditional and Roth IRA - Your spouse must be under the age of 70 ½ in order to be eligible for a traditional IRA. Meanwhile, there are no age limits if you plan to open a Roth IRA.

Name the IRA after your spouse - Make sure to open the IRA using your spouse’s name, with only you as the beneficiary. Joint accounts are not allowed even though you are making the contribution. Your spouse’s social security number is also needed in applying for spousal IRA.

Review the compensation limits - For a traditional IRA, the amount you earn in order to contribute to a spousal IRA is limitless. Meanwhile, there is a limited amount when contributing for a Roth spousal IRA, which you cannot go over. For more information, read the IRS Publication 590 for the compensation current limit for high income persons. Also, you need to take advantage of the catch-up limit if you and your spouse are over 50 years of age.

Review the contribution limits - Contribution limits differ depending on the type of IRA as well as the tax year. For 2008, you can contribute the lesser of your earnings or $5000 to a spousal IRA. If your spouse is over 50 years old, you can contribute an additional $1000. Remember that only contributions to a traditional spousal IRA are tax deductible up to the maximum contribution limits.

Learn the deduction limits - If your workplace does not provide a retirement plan, you would still be able to deduct the full amount of your spousal traditional IRA from your income tax return. Meanwhile, your deduction could be reduced if you are covered by a retirement plan. Take advantage of a tax deduction by opening a spousal IRA and making a contribution before the federal income tax filing date for the tax year. For more information, refer to IRS Publication 590.

The Simplified Employee Pension Individual Retirement Account (SEP-IRA) is a retirement plan available for self-employed individuals and small businesses. It is basically a written plan that allows a self-employed individual to contribute towards retirement without the complexity of other plans.

Eligibility and exclusion

The SEP-IRA can be participated by a self-employed person or employee of a small business who is at least 21 years of age, has worked for the company at least three of the last 5 years, and has received at least US$450 in compensation for the year. However, employees covered by a union contract with retirement benefits bargained by the employees themselves, as well as some nonresident alien employees, are excluded from this plan.

Contribution and deduction limits

Self-employed individuals contribute the lesser amount between 25 percent of the net self-employment earnings in a year or US$45,000. Meanwhile, deduction limits is determined by the IRS. You can refer to the IRS Publication 560 for more information.

On the other hand, small business employees also contribute the lesser of 25 percent of their compensation or US$45,000; while the most they can deduct is the lesser of the contributions for the employee for the year or 25 percent of the employee’s total compensation not exceeding US$45,000.

Advantages of SEP-IRA

With SEP-IRA, investment earnings grow tax-deferred until it is distributed and has low administrative costs. Contributors are also not locked into making contributions every year, and would find the plan as easy to set up and operate.

People usually surrender to the notion that retirement means they have to stop working and spend the rest of their lives slowing down while enjoying the leisurely activities they did not have time for while they were employed. However, you could consider working even after your retirement. Surveys have shown that almost two-thirds of Americans who are not yet retired say that they plan on continuing to work at some type of job that will continue earning them a paycheck even after retirement.

Reasons for working after retirement

Some retiree consider working in order to make a little extra money, as well as having that sense of “doing something” that retirement life could not satisfy. However, there are cases of retirees who want to work because they did not save enough money after retirement and would want to get by. And unfortunately, many people would end up like that: working even well after retirement because they are simply broke. Retirees who work after retirement should consider their job as part of their financial planning.

Will working after retirement affect the retirement income?

People who consider working even after retirement tend to wonder whether they would lose their Social Security benefits or whether their pensions will be affected. Retirees who work can still receive Social Security retirement benefits once they have reached full retirement age. The catch, however, is whether the person who retires and receives Social Security before his or her full retirement age.

Meanwhile, working after retirement can affect any pension you could received from employers you had. You need to make sure of your company’s policy regarding pension benefits on how your pension will be affected.

Working after retirement could also place you in a higher tax. This means that when you begin taking withdrawals from your IRA or 401K, you could actually be actually end up paying more taxes. Your Social Security benefits could also be subjected to taxes.

Job search after retirement

Looking for work after retirement is different from what you are used to. Aside from financial considerations, you also need to contemplate about your lifestyle and age. A 40-hour-a-week job could not be the right job for you, as you need to remember that retirement is also your time to relax and enjoy the rest of your life. Also, it cannot be denied that many companies practice age discrimination, thinking that older employers take longer to train and got up to speed than other workers.

Because the prospect of finding a job at retirement age is slim, you need the help of your family and friends. Ask for vacancies to them, even to your former employee or employers. You can also try searching for a job online, filtering age requirements according to your current age.

Living a life after retirement starts at deciding where to settle for the rest of your life.  You may want to stick in to your home city, but deep inside you know you want to breathe fresh air or have a wonderful time on the beach that your city may not have.  Whatever you decide, you need to weigh in several factors that will help you make sure that you made the right decision.

Your own lifestyle – How you like to spend your days is a big factor to consider when deciding where to live after retirement.  If you like skiing during winter or simply prefer the cold weather, living in a warm environment may not suit your lifestyle.  A fascination for art galleries and museums may not be good for a fellow living in a remote rural area.  You may also want to live closer to your family so you do not have to travel very far when visiting them.

Health care programs – Health issues are becoming more important to you, so you need to reside in a place where there is a health care facility and physician who can take care of your needs whether or not you have an existing condition.  If you feel you are healthy enough, you may just need basic health care.

Housing and real estate – If you are planning to live in a condominium or a retirement village, you need to choose an area that has this type of housing available.  You may also want to retire on country farm for a change of environment, but consider if the land is suitable for farming (just in case you get interested with it).

Weather – You want to be happy with the climate.  If you do not like living in hot weather, the likes of Arizona or New Mexico would not be suitable for your taste.  If you do not like cold and snowy weather, avoid the northern states.  If you hate getting hit by hurricanes, the southern states would not be a good place to live.  Decide what climate you can tolerate and look for a retirement home within that geographic area.

Taxes – No matter where you live after retirement, you cannot escape from paying taxes.  Most states have an income tax, but there are some that do not tax retirement income or social security.  Real estate taxes are applied in most states, but some have a homestead exemption that will lower the taxes for some individuals.  Some states have personal property tax that can be quite costly if you have plenty of property subject to tax.  For more information, visit the web site of the state you choose.

Consider ourselves lucky that we are not living in the Great Depression, when you can only retire from work when you are no longer able, either because you are too old, too sick, or dead.  To solve that problem, social security was introduced, paying the workers a retirement benefit when they reached the age of 65.  It was meant to provide them means of living their finals years in relative comfort.  However, there came a time when social security became a retiree’s only source of income.  It was not a bad idea back then since quality of life for many people over the age of 65 was very low.

But times have changed, retirees live a better life even after their working life, spending on activities that they could not do while they were working.  That quality of life comes with a price, and relying on social security alone to pay those expenses may not be a good idea.

Why social security alone does not provide a secure retirement

An employee who decided to fund his retirement solely with his monthly social security benefit check may realize too late that his monthly take is one-third or one-fourth the amount of his monthly salary.  If he lists down all of his monthly expenses including car payment, utilities, groceries, gasoline, and insurance, he might he left with a small amount of savings.  However, these expenses do not include vacations, visits to children and grandchildren, or any other frills he wants to enjoy.  The remaining amount may not even cover the cost of hospitalization if he, God forbid, gets injured or sick and needed medical attention.

This is why it is very important to start planning and saving for your retirement as soon as possible.  The earlier, and abler, you can save up for retirement the better.

Saving up for retirement should start early on, especially while still single.  Women should plan about retirement most of all because in the United States, the women usually get the short end of the stick.  While women need the same monthly income as men to support their needs, they traditionally earn less than men and are more prone to have broken work patterns or part time jobs.  Which is why it is no surprise why only about 35 percent of single women plan for retirement.

Still not convinced on saving for retirement?  Do you know that the United States has the highest poverty rate of older women?  Also, pensions received by women are usually worth less than those received by men.  How can you be assured of a fulfilling life at your senior years if you do not have enough money to spend?

Saving for retirement should start now.  If you work for a company that offers a pension plan or 401K, invest as much as you can afford.  If your workplace does not provide such program, put aside money every payday and never ever spend it.

Learn all you can about saving and investing.  The Internet is full of vital information that you can use to educate yourself.  With more knowledge, you become better prepared in taking control of your retirement.

Control your spending.  Make sure you need something before you buy it.  Also, never go into debt that you cannot afford paying back.  Learn to budget your money and put your spending to the minimum.

Just because you opted for a 401K as your retirement plan, your future becomes any easier.  In fact, wrong decisions while investing on your retirement plan may leave you getting smaller amount of money and a little less happy retirement life.  Here are some mistakes in investing for 401K that you need to avoid.

Sticking to just one fund – Just because your company offers 401K does not mean you should load all your retirement money into one fund.  Diversification is key when it comes to investing, and there are different types of retirement and mutual funds where you could also put your money on.

Investing primarily in company stock – Many publicly-traded companies offer their own stock in the 401K plan, but it can be dangerous especially when the company becomes out of business.  Investing in your future should not be done by being loyal to the company but by being prepared of the many possibilities.  Company stocks can either be very profitable or very dangerous, because once the company goes bankrupt your retirement savings go along with it (not to mention your job).  When investing in company stock, it should only be a small portion of your portfolio, no more than 10 percent.  If it is offered at a discount, take it.

Investing in large company stocks – It is a common misconception that stocks from large companies are better than those from smaller companies.  Actually, small company stocks outperform large company stocks especially when it comes to long-term investment.

Investing only within your borders – Ever wonder why business news feature stock exchange updates from other countries aside from the United States?  That is because many investors also put their money outside the US borders, and it is actually a good thing.  Keeping patriotic in your investment could cost you a percent or two in returns each year, especially when the US dollar becomes weaker.  Consider investing 30 to 50 percent of your money internationally, depending on the variety of international options in your plan and your own comfort level.