The premise for this Retirement Planning Guide 2018 is straightforward. Plan for a retirement that lets you do what you want, when you want. That might entail not working at all, working less in the same field or striking out in a whole new dream career.
But how do you go about it? And perhaps most important, how can you afford your dream?
The short answer is start early and save heavily. While you’re saving and investing, come up with a comprehensive plan that will carry you to a comfortable retirement, whichever form it takes.
IBD’s Retirement Planning Guide 2018 helps you answer those questions in more detail. Stories in this retirement planning guide cover such issues as how to create the best retirement plan. You’ll also find an estate planning checklist and coverage of the best places to retire, working after retirement and how to deal with Social Security.
How Do I Plan For Retirement?
“Many articles advise, now that you’re retired, you should do something exciting,” said Natalie Choate, an attorney with the Boston law firm Nutter McClennen & Fish. You should get out of your comfort zone by skydiving or buying a motorcycle or taking a jungle safari. Or so they say.
Choate, whose classic book, “Life and Death Planning for Retirement Benefits,” is in its 7th Edition, has a different message and a different method. Before stepping out of that airplane, run through your estate planning checklist. These list items will include a will, living trust, power of attorney and advance health care directive.
“Take a minute or a rainy weekend and do something boring,” she said. “Find and organize all your retirement plan records. You can save yourself and your heirs a lot of trouble (and money) just by doing some paperwork.”
Such paperwork can indicate how far along you are in lining up the funds for your retirement. “Retirees have more responsibility now,” said IRA expert Ed Slott, founder of IRAhelp.com. “In the past, more people had pensions. Now people have 401(k)s and IRAs, which they must manage to last for a long retirement.”
Now that 401(k)s and IRAs have largely replaced traditional private-sector pensions, it’s a new era when it comes to retirement. And that takes new thinking. It’s no longer automatic to plan to retire at 65, receive Medicare and Social Security benefits, and live on income from investment interest and dividends.
At What Age Should I Start Social Security?
In 2018, the retirement age spectrum stretches from the 40s to the 70s and even beyond. With so many opportunities, it all depends on how you want to shape your life.
Never before have there been so many tools at your disposal to build a financially independent life, as early as you want. Retirement vehicles include 401(k)s and IRAs — both regular and Roth versions — annuities and separate accounts. You can get referrals or search online for a financial advisor to help you plan for retirement.
Your employer’s 401(k) plan likely offers education on how to get started, build up your savings and maintain your nest egg in these tax-advantaged accounts. Fund companies and award winning stock brokers like Fidelity Investments, Charles Schwab (SCHW), T. Rowe Price (TROW), TD Ameritrade (AMTD) and TradeStation offer tons of educational material. Their associates offer various levels of assistance in opening accounts and setting up a financial plan.
But it all begins with savvy retirement planning, and this Retirement Planning Guide 2018 has the information you’ll need for a personalized notes-to-self memo.
The actions you take today will have a critical, lasting impact on how you live in retirement. It starts with a plan and a knowledge of how to put that plan into action to achieve your financial goals.
Retirement Planning Guide 2018: 401(k) And IRA Contributions
Smart investment planning underpins having enough money in retirement. Investing on a regular schedule, especially through automatic withdrawals into a tax-deferred retirement account such as a 401(k), can create an effective and effortless strategy to build up retirement savings.
Today’s investment scene presents some daunting challenges. Stocks are near record levels, raising fears that we could see a repeat of the retreats investors experienced in 2000 and 2008.
Such pullbacks can put stocks “on sale,” as they have in the past, for investors with many years before retirement. Millennials — investors now in their 20s or 30s — might do especially well if they can overcome their fears (and their student loan debt) to stick with stocks.
Retirement Planning Guide 2018: Stock Market Risk
But people who are near or just starting retirement are at greater risk from a steep market pullback in the next year or two. Decades’ worth of savings could be wiped out and never fully replaced, if they are drawing down their portfolio.
Near and new retirees can avoid this risk by switching to cash, but yields are puny now. Taking a middle ground might be prudent.
“During bull markets, like the one we have been experiencing, clients often forget the importance of holding fixed income in their portfolios,” said certified financial planner Robert Westley, a vice president and wealth advisor at Northern Trust in New York. He added that retirees should have enough fixed income to support their spending needs for a number of years in the event of a market drop.
An allocation to fixed income may help to keep retirees from having to sell equities at depressed values, so they can ride out a market downturn. “Investors should utilize prudent asset location planning when determining where to hold their target equity and fixed income exposure,” Westley said.
“Asset location planning consists of considering the different tax characteristics of asset classes and the vehicles or accounts where they are held in order to gain a better after-tax rate of return,” said Westley, who is a CPA/PFS and serves on the AICPA’s Personal Financial Specialist Credential Committee. For example, corporate bonds and corporate bond funds that generate ordinary interest income are best held in a tax-deferred retirement account while municipal bond holdings that pay federally tax-free income work better in a taxable account.
The more things change, the more they stay the same. That includes perennial worries about the future of Social Security.
Meanwhile, the dependence of many retirees on Social Security also remains the same. With sub-3% yields on 10-year Treasury notes now, annual cash flow of, say, $25,000 from Social Security equals more retirement income than $800,000 of those Treasuries. With favorable taxation and inflation protection as well as lifetime payouts, Social Security still addresses key retiree concerns, so it’s well worth the effort to keep up with tactics to boost benefits.
What’s more, the rules on mixing earned income with Social Security benefits have been eased. Our story about working after retirement shows you how to pick up extra income or pursue a dream career yet still get a full payout from Uncle Sam.
Retirement Planning Guide 2018: Tax Reform Law
For many people, retirement equals relocation. This special report’s article on where to live after retirement explores what you need to know about where to call home, from staying put (familiar surroundings) to moving within the U.S. (retirement communities) to living abroad. These days,…