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Eight steps to successful retirement planning

January 29, 2014
Times Leader

Have you heard of this, "People don't plan to fail, they just fail to plan". Retirement planning is just what the title implies, it is simply planning for retirement. There are several ways you can fund your retirement. An individual can use many different investment vehicles to fund their retirement. We will explore some of the options and illustrate an 8 step plan to implement your choice of funding retirement.

You can participate into a 401K Plan if it's offered by your employer. Most employers will match a certain portion of your contribution. You can allocate different percentages of your contribution to the plan in different sub accounts or investment vehicles (Mutual Funds, Stocks, Fixed Accounts, Bonds or Bond Funds). If the employer does not offer 401K Plans you can open your own Traditional IRA or a ROTH IRA.

Traditional IRA, 403B Plan or Deferred Compensation Plan are tax deductible plans. Depending on an individual's income the contribution to the plan is tax deductible but all withdrawals after age 59 all taxable since you have never paid taxes on any of your money (withdrawals prior to age 59 will have a penalty).

ROTH IRA however, is not tax deductible but all your money including the gains are tax free when you take the money out. However, you have to meet the requirements by the IRS to withdraw your money without having to pay taxes. And the requirements are: the account has to be on deferral for at least 5 years and you have to be at least 59 years old.

Typically I recommend a Fixed or Fixed Index Annuity to fund the IRA or ROTH IRA. In 2011 anyone below 50 years old can contribute up to $5,000.00 per year and an additional $1,000.00 for a total of deductible contribution of $6,000.00 for people ages 50 and above. You and/or your spouse has to be employed and making at least $5,000.00 or $6,000.00 for the year.

There are a lot of things to consider when planning for retirement. You can also transfer your 401K to an IRA once you're separated from your employer. For self employed individuals, you can also open an Individual 401K Plan or a SEP IRA depending on the income of the business owner and the contribution he/she wants to make on a yearly basis. Some people however will use other investment vehicles such as real estate, precious metals, etc to fund their retirement.

In short, our goal is helping you manage your assets so that you will not run out of money before you run out of time. Planning for retirement is one of the best mechanisms for the maintenance, preservation and enjoyment of wealth. Planning should begin as soon as you are employed and not when you are five or ten years away from your retirement age as is commonly thought. While all persons need to ensure that ample provision is made for their retirement, whether or not they are part of a structured pension plan, it is particularly important for self employed persons, including professionals, whose sole priority it is to establish and finance their own pension plans.

Here are the eight steps to retirement security:

1. Create a plan and begin saving as early as you can. The sooner you start to save, the more you will accumulate for your retirement. Take time to calculate how much income you will need for your retirement and then assess how much you should save regularly monthly and annually to achieve that goal.

2. Get the most out of your pension plan. Pension contributions are tax-free. It is, therefore, advisable that you take advantage of making the additional voluntary contribution. You'll be glad you did in later years.

3. Take advantage of other investment vehicles. The chances are that no single plan will allow you to accumulate all the funds that you will need for retirement. So, in your retirement planning, consider including in your portfolio a mixture of equities, bonds and funds. As people find that their fixed investment income is yielding less and less interest, many savvy investors are switching to possession of physical precious metals to solidify their retirement portfolios.

4. Invest with your head not your gut. Take the time to research the facts and seek professional help from a Financial Advisor or pensions expert who will help you to create a diversified portfolio that can thrive in 'up-markets' and will rebound quickly even when there is a downturn.

5. If you are so inclined, take a retirement job. Some retirees engage in part-time employment in a bid to prolong the life of their nest egg. Part-time employment also offers emotional benefits, keeping retirees engaged. Indeed,'re-hire' is rapidly becoming the preferred approach to 'retire.'

6. Don't be afraid to improvise. The road to retirement can have unexpected expenses which erode savings. There are strategies you can consider to improve your situation. For example, delaying retirement a few years taking out a reverse mortgage on your property or relocating to an area with lower living expenses.

7. Monitor your progress regularly. A retirement plan cannot be put on auto-pilot. To ensure you to stay on track, you should review your plan at least once a year. Reassess your investment strategy as market conditions change. Re-evaluate your savings effort and make adjustments as necessary.

8. Plan an exit strategy. Accumulating a tidy nest egg is only half the challenge of retirement planning. The other half is transforming your investments into an income that will support you for the rest of your life. This means that you should set a reasonable withdrawal rate from your retirement accounts, deciding whether to pull money from tax-advantaged or taxable accounts first and whether to include vehicles such as annuities in your portfolio.

A note for persons who are self-employed: in your discussions with your Yourkovich & Associates Financial Services Financial Advisor, you should ensure that you explore all the retirement planning options open to you, including participation in an Individual Retirement Account.

As a time-tested principle, diversification is the cornerstone of a sound investment strategy. It involves spreading your money across many kinds of investments to help manage volatility.

Rather than chasing performance, a better long-term strategy may be to position your portfolio for a variety of market conditions by allocating a percentage of your assets among a variety of investments. A proper asset allocation mix is based on your goals, risk tolerance and time frame.

There are generally two broad types of asset allocation portfolios, and your choice depends on your investing style preferences. Risk-based: A portfolio that matches your comfort with market ups and downs. Time-based: A portfolio based upon a future date when you plan to start using your money.

As with all investment advice strategies, these for retirement and savings are based on averages. And, of course, no single person is truly average. It's better to develop a personalized plan when it comes to retirement than it is to operate solely off of rules of thumb. Instead, meet with a financial planner or do more extensive research to set retirement savings and spending goals based on your unique personality, life and financial situation.

Sitting down with a Retirement Planner can guide you on how you can reach your goal. The most important thing you need to do is "get started now". The sooner you get started the better off you'll be in the future.

Life is like a football game or a baskeball game. In the beginning we all have a lot of time. The older we get the shorter time we have to save for retirement. You cannot depend on social security. The future of social security is up in the air plus depending on your income relying solely on social security is not going to give you the retirement you're looking for.

The next most important thing you need to do is to make sure you're well diversified. Investing in 5 different stocks or 5 different equity funds or mutual funds is not the diversification I'm talking about. You need to put a smaller percentage of your money into an aggressive or moderately aggressive accounts and most percentage in guaranteed accounts. By doing this, it will prevent you from losing a lot of money or all your money in the future.

Remember, you have to be realistic about your goals. If you make more money than what you expected to make at retirement, that is a lot better than expecting more money but getting much less. What will you do then? Guaranteed and predictable retirement is always best in my opinion.



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