Retirement Planning Blog

We get so tied up in our retirement planning solutions regarding real estate, cars, housing and tax benefits that we entirely overlook a very simple yet important aspect. You must be wondering what it is? It’s the cost of food. It might appear to be a trivial task. But, once you sit down and ponder over your food expenses on weekly basis, you would realize how significant it is.

As food costs form a daily part of our expenses, we really can’t afford to omit it from the list of our consideration. If you also agree on this part, you must start your calculations right away. Begin counting your food costs on weekly basis, and, then move on to monthly and yearly calculations of the same.

Once you are done with calculating your food expenses for one whole year, you can multiply the available figure by 25 or 30, as many suggest. The final figures will reflect the amount of money you would be spending on food during your retirement phase. Well, this might not be one of the perfect solutions, but it’s undeniably a way out to make our retired life smooth and enjoyable. We must not forget that every step/ effort counts.

It has hit the world drastically in an unprecedented manner; it has shaken the whole world as never before. The recent recession has resulted in a series of job loss, financial market loss, drastic fall in the real estate values and a lot more setback. And the wave has also reached to the retirees and also to those who are in verge of their retirements. They are certainly feeling the heat of it.

As the recession destabilizes the world economy, one of the segments that feels its heat at the very first instance is surely the job market. Organizations need to go for cost-cutting, which resulted in cutting down of manpower. Many had to lose their jobs in the recession. According to an AARP survey, 30 percent of the Americans in the age group of 45–64 have escaped layoffs, but have had to settle for a pay cut. 29 percent of them have ceased to contribute to various investments like 401(k), IRA and others. 18 percent have withdrawn their funds from these accounts prematurely. According to the executive Vice President of AARP, Nancy LeaMond, this population of 45 to 64 age-groups is particularly squeezed. This economical downturn has left them in such a squeezed state where they hardly focus on their own financial and retirement security as they have to take care of their aging parents as well as their children.

Recession is also having an impact on the state of health of people, especially to this 45 – 64 population. With a rise in the health cost, they are required to pay more to their health insurance premium. 22 percent have faced this problem where they have been asked by the health insurer or their employer to pay the extra amount. As a result, 9 percent, being unable to pay the higher premium, lost their health insurance coverage. 27 percent are also having problems in paying their medical bills. People have to take some unusual means to cut down the medical care expenses, which may prove to be quite harmful sometimes. Many have cut down their necessary medical or dental work; some cut their pills in half or even skipped the doses.

The impact of recession can also be seen in the driving habit of the seniors. Many have cut down on driving in order to reduce the fuel costs. Some have also opted out of their gym membership.

With proper retirement planning, you can add that charm and get rid of stress in the post retirement period. As most of the retirees have to live with a fixed source of funds, it is wise that you make proper planning for your retirement in advance. Here is a quick retirement planning guide to help you to take the right steps and secure your future:-

Wise savings

Perhaps the first step towards right retirement plan is to save wisely. Try to increase your savings as they may prove to be quite a handful after you retire. By planning your retirement properly, you can keep a track of your savings and the spending. If you see that the expenditure is increasing, it is better that you cut down on them and start saving for the future. The savings that you make can be very useful after you retire and come handy while emergencies.

Retirement plans

If you are looking for the right channel to save your funds, opt for some retirement accounts. There are many retirement plans through which you can save your hard earned money and keep funds for the future. You can opt for 401k accounts, Individual Retirement Accounts (IRAs), Roth IRA plan, 403(b) retirement plans, 457 plans and other retirement accounts. In order to choose your right retirement plan, you need to have an idea of the various retirement plans and their benefits and features. Most of these retirement plans provide good increase on your money and you can also enjoy tax exemptions and benefits from them.

While you are maintaining the retirement account, you also need to have some idea of the rate of withdrawing the money. In most cases, one is not allowed to withdraw money before the age of 59.5 years. If one withdraws money before the stipulated age, the tax rates are applicable and also he or she needs to pay a penalty of 10 percent of the amount withdrawn. After you attain the said age, you are free to withdraw the money. However, you should try to keep the initial withdrawal rate to around 5%.

Diversified portfolio

For bagging benefits out of your stock market, try to have a diversified portfolio. This prevents you from the whims of the stock market and also guide you to create a balance between the losses and the profits in the stock market. Usually, your portfolio should be a mixture of stocks, equities, debentures, bonds and other short term and long term invest channels.

Other factors

A proper retirement location adds to the charm of retirement. You need to search for the right retirement location to have a great post retirement period. You also need to maintain a good retirement lifestyle to be in the best of mind and body.A good retirement location will help live a lifestyle that you always dreamt of.

Thus following the tips in this retirement planning guide you can make your retirement life enjoyable.

COLA stands for Cost of Living Adjustments and not Coca-Cola as some might think. COLA is a special retirement benefit which is based on the monthly payment inflation index. After the enactment of the law, an automatic Cost of Living adjustment was provided by Social Security. Through these adjustments, the retirement benefits get increase according to the increase in the rate of inflation.

COLA can be determined by a number of ways. Usually, the calculation is based on the increase in the Consumer Price Index (CPI-W) in the third quarter on the third quarter index of the previous year. The process is pretty simple and is based on some factors such as the Social Security benefits, income of the applicant, the price index, the market condition and so on.

In most cases, the COLA benefits are announced in the month of October every year. The adjustments in the accounts are paid every year in the month of December. The amount of the COLA benefits that you will receive depends as per the CPI-W. Cost of Living Adjustments are also based on the inflation. At times, the yearly COLA can be as high as 14.3% while sometimes it can even come down to 1.3%. Cost of Living adjustments for the year 2008 was around 5.8%.

To cope up with recent recession and also enjoy good benefits, you need to manage your monetary resources in a prudent manner. Proper monetary and financial management is needed to be financially stable even after you retire. There are a number of ways you can do financial planning for retirement years.

Some of the proper means that you can follow are:-

More savings: One of the best ways to manage your money is to make savings. Proper savings can always add to your retirement funds and help you with financial stability in the long run. Try to have a tendency to save. Always have an estimate of the savings and the revenues. If you see that your expenses are exceeding the revenue, it is time to cut down on them and add to your savings.

Opt for 401(K) account: The 401(k) account is one of the best ways to manage your funds. 401k account comes in 401k retirement plans which are mostly employer sponsored plans and provides you with good amount of benefits. At times, 401(k) matching contributions are also provided. If your employer provides such matching contributions, readily accept the offer. The earnings and the investments that you make in the account can reap benefits in the future years.

Have an Individual Retirement Accounts (IRAs): The IRA plans are one of the safest yet lucrative ways to earn good profits. By opting for a retirement account, you can enjoy better benefits in the long run. In addition, the IRA accounts are also entitled to a number of tax exemptions. There are mostly two types of IRA accounts: Traditional IRA and Roth IRA accounts.

Invest in stocks: Proper money management can also take place if you properly invest in the stock market. Try to have a diversified portfolio and invest your money into various channels. Ideally, a diversified portfolio should include stocks, equities, bonds, debentures and other short and long term investments.

Retirement Insurance is an important aspect of retirement planning. A proper planning is required to help you have financial stability and enjoy better benefits in the post retirement period. As such, one should have a proper retirement insurance plan to make the post retirement period secure and safe.

There are a number of retirement insurance plans that you can opt for as per your needs and preferences. By selecting the right retirement insurance plan, you can enjoy better benefits. Insurance is perhaps required in every sector of our lives and having a proper idea of the insurance benefits will help you select the right plan.

Insurance is very much needed in sectors like health care. Recent surveys show that more and more retirees are opting for health insurance plans to cope with the rising health care costs. You can choose from various types of health care insurance benefits such as Medicare, Medicaid and so on. One can individually purchase health care plans as well or sometimes employers also provide health insurance plans.

Life insurance is also a major part of retirement insurance benefits. A proper life insurance program makes you safe and secure. There are different kinds of retirement insurance plans such as term life insurance, endowment funds , whole life insurance,  and so on.

Home is perhaps one of the most important aspects of our lives. It provides us shelter, security, safety and in fact an identity. As a result, it’s important that you should try to prevent your home against any type of emergencies or accidents. Insurance is the best way to take care of your home and keep it secure. Some of the well known home insurance plans that you can choose include living expenses coverage, swelling property, and personal liability and so on.

Apart from these, there are also some more retirement insurance plans which keep you safe and secure in the years after you retire.

The 401(k) plans are employer sponsored plans to make retirees and aged, secure and financially stable in the post retirement period. However, there are some do’s and don’ts of 401k plans which you need to take care of. Having some idea about the 401(k) plan will prevent such risks from taking place.

Here are some risks that are involved in the 401(k) plan:

Improper evaluation of returns: Although the 401(k) accounts provide you good benefits, you should never depend on them. While selecting your retirement plan, you need to evaluate the positives and the negative sides and decide accordingly. Most plans provide various options of investment, good company matching benefits and so on. While opting for the plans, try to look into the terms and conditions and decide accordingly.

Investing in the stocks: One of the common mistakes or risks that investors take is to depend more on stocks and mutual funds. Investing too much on the stock market can make you vulnerable to various market conditions. As such, you need to have diversified portfolio to maintain a balance between your profits and losses.

Forgetting the 401(k) matches: Another mistake involved in the 401(k) is not to take the matching contributions. Matching contributions can be very handy in providing you with more benefits. As such, if you employer provides you with the matching contributions, readily accept them. The matching contributions can be a great way to make you financially stable in the long run.

Risks of inflation: A major form of risk associated with the 401(k) retirement plan is inflation. The higher price level caused due to inflation can also increase the rate of interest. This can add to the expenses and can be a big problem for the aged and the retirees. One of the best options to prevent such inflation led losses is to invest in mortgages, immediate annuities, dividend paying stocks and so on.

It may sound surprising but Social Security can provide you free loans. Under the present scenario, retirees can choose between various options like claiming the benefits at 62 and getting reduced returns or delaying claiming the benefits till 70 and enjoying full returns every month.

Now, in order to get higher lifetime benefits, you can use some unconventional strategies. One of them is known as the “Free Loan from Social Security” strategy. By applying this strategy, you can get some free loans from the social security accounts. For instance, if you claim Social Security at 62 years of age and reclaim the same at 70 years, you can receive a higher benefit. As you only need to pay back the principle loan amount, you can keep the interest and invest it in some other channel.

If you are of age 70 and adopt a Free Loan” strategy, you can first claim some benefits at 62 years of age and again reclaim it at 70 years. The interests that you receive provides you with the head-start’ on reaching the break-even age. In order to be break even, you need to live until you are entitled to the total benefits of social security.