CLOSING THE RETIREMENT MONEY GAP

If you’re trying to close the gap between the amount you’ve saved for retirement and the amount that you want and need, here are some strategies that may help.

You can start by setting a savings goal. Set up regular, automatic deposits. By making it convenient, you’ll save regularly and won’t spend the money instead. The sooner you start saving for retirement, the more time your money has the potential to grow and the harder your money works for you. Even if you can only set aside a little each month, starting early could help you to take advantage of the potential of compounding. Even if you didn’t start early, it pays to start now. Contributing regularly is key.

You can start by setting a savings goal. Set up regular, automatic deposits. By making it convenient, you’ll save regularly and won’t spend the money instead. The sooner you start saving for retirement, the more time your money has the potential to grow and the harder your money works for you. Even if you can only set aside a little each month, starting early could help you to take advantage of the potential of compounding. Even if you didn’t start early, it pays to start now. Contributing regularly is key.

Find ways to cut your spending. Consider downsizing your home or moving to a more affordable area. Look at your bank and credit card statements for recurring expenses that you no longer need or want. From making coffee at home to reevaluating your insurance policies, think about small, regular expenses and less frequent, larger expenses.

Many experts recommend that you pay off major debts, such as home mortgages, college loans and other significant cash-flow drains, as quickly as you can. By paying off your debts, you can greatly reduce the amount of money you’ll need each month during retirement.

As your target retirement date draws closer, you may want to reduce the percentage of stocks and increase the percentage of bonds in your portfolio. That’s because the prices of stocks can go up and down quickly over the short term, while bonds are more stable and produce a steady source of income. Many plans offer target date plans that become less risky as you get older and closer to your retirement date. Also, ask your investment advisor or other trusted financial professional about investments specifically designed for retirement.

Review your annual Social Security statement to learn about your benefits and options. Make sure your personal information is up-to-date and your wage records are accurate.

You can choose to work longer, delaying the date when you’ll depend on your portfolio income. A few additional years of full-time or even a part-time income in retirement can make a big difference in achieving your retirement plan. If you own your own business, think about revising your business exit strategy in a way that generates more assets or income to support your retirement lifestyle.

The way you withdraw retirement funds may affect your income and taxes. Consider withdrawing funds first from Social Security, then from taxable investment accounts, and last from your retirement accounts, such as IRAs and other tax-deferred accounts. This may help you cover your monthly expenses, minimize your income taxes, and keep as much money as possible working tax-deferred for your future. Consult your tax or investment advisor to determine the right decisions for your situation.

Rather than having your taxes automatically withheld from your retirement distributions, consider paying estimated taxes quarterly so you have access to the funds in the interim. Consult your tax advisor for assistance with determining your quarterly payments.

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NEARING RETIREMENT

You’re almost there, but you don’t want to lose focus now. Keep up your savings, review your retirement plan, and determine how much income you will need in retirement.

Now that you’re nearing retirement, it’s important to watch your savings closely. But there are many other things you should be taking into account as you consider your retirement years.

Save more

As you’re nearing retirement age, extra money is allowed to be saved in retirement accounts, known as “catch up contributions.” As of 2020, the Internal Revenue Service allows individuals age 50 or older to contribute an additional $6000 in “catch up contributions” in certain plans.

Review and update your retirement plan

Check your retirement investments and allocations. Recheck that your savings are going to meet your needs in retirement. And consider consolidating your tax-deferred investments, retirement accounts, and other savings to keep management of your finances easier. Consider your current assets and make sure your projections and assets support your goals.

Protect yourself from the unexpected

Your ability to retire can be jeopardized by things beyond your control. You can take steps to minimize their impact on your financial resources in retirement.

  • Consider additional life insurance to protect and provide for your family
  • Learn about long-term care insurance
  • Ensure your home, one of your most important retirement assets, is sufficiently insured
  • You can’t know how many years you’ll be retired; plan for at least 20 years of retirement
  • Inflation can end up taking more of your money than expected; make sure your plans account for it

Be sure your investments are diversified so you are best prepared for market changes.

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Develop your income plan

As you approach retirement you’ll find you need to create a retirement budget, identifying sources of income and understanding what your expenses will be.

Sources of income

Depending on your situation you could look to the following sources for income in retirement:

  • Investment and savings account withdrawals
  • Social security payments
  • Pension payments
  • Annuities
  • Job earnings

Potential expenses in retirement

  • Basic needs (food, shelter, utilities, etc.)
  • Discretionary needs (specifics to your situation)
  • Medical expenses (these may be higher in retirement)
  • Additional insurance costs

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