“Have Enough Retirement Income” is a guest post by Jeff Rose. Jeff Rose is an Illinois Certified Financial Planner and co-founder of Alliance Investment Planning Group. He is also the author of Good Financial Cents, a financial planning and investment blog. One of his most interesting posts lately is Illinois Term Life Insurance Quote.
Do you feel like your retirement and financial plan need a boost? Unfortunately, drinking a V-8 or heading to a motivational workshop will not take care of this. One of the traditional ways to retire financially stable is to start saving long before you reach your retirement years. Here are some tips to help you retire with a nest egg large enough to support your needs and wants:
More. And now. The only way to augment your retirement plan is to make starter investments, contribute more money and to do it now. Even the smallest additional amount added to your savings will add up significantly over time. And time is key; compound interest means little in the short term.
Find out what your employer can do for you.
If a 401k plan is offered to you through your job, you definitely want to take advantage of it. Money is automatically taken from your paycheck. These funds are tax-deferred and subject to early withdrawal penalties; this is a good thing as you will be unlikely to touch it, thus allowing your plan to grow (Read “IRA Restrictions.”) Many employers offer a matching program. This means exactly what you think: whatever you contribute is matched by your employer, usually up to 6% of your income. In order to receive this additional funding, you need to participate to a certain level in your 401k plan, but who would say no to free money?
Open an Individual Retirement Account.
Another savings plan with tax advantages is the traditional IRA. With this type of retirement account, individuals save money on a tax-deferred basis to be invested in various ways. Even if you have a 401k through your job, you can still put aside extra earnings (usually up to $5,000) in an IRA. This money can be invested in a variety of ways.
- CDs and Money Markets – These options are considered “safe” but only give you 4-5% interest over time.
- Bonds – This is a good choice for the risk-adverse and will give you more than CDs and money markets, usually 6-8% over time. Dividends can be reinvested or spent. Bonds can be a good way to stabilize your portfolio.
- Stocks and Mutual Funds – These choices are the most popular and the best way to increase your wealth. Though volatile in nature, stocks and mutual funds tend to beat inflation and allow your money to compound via dividends and increases in share prices.
Consider a Roth IRA.
A Roth Account is a special type of retirement plan where you pay taxes upfront and then sit back and allow your earnings to grow tax-free (as long as you hold the account for a five-year minimum). This means you will not be hit with taxes when you tap into your account in later years. Another advantage to this kind of account is that fewer restrictions are imposed upon the investments that can be made. For example, withdrawals are generally tax-free, although certain stipulations may apply. Transactions occurring within your account, such as capital gains, interest and dividends) are not subjected to a current tax liability. Although you will not receive any tax deductions for contributions made, your money will grow tax-free, and you can’t argue with that. Here’s some information regarding the Roth IRA rules for 2011.
Don’t Forget Life Insurance
Look into a permanent, or whole, life insurance policy if you are looking for other ways to fund or supplement your retirement. (Read “Term Life Insurance vs. Whole Life Insurance” for Neal’s perspective.) Most permanent life insurance policies can also function as a kind of savings account. And with this kind of policy, these savings can be tapped into without canceling your policy. A single life insurance policy with a survivorship rider will ensure that you or your spouse will be provided for. The provision makes the death benefit payable to the surviving spouse after the death of either one.
Jeff Rose is an independent financial advisor who loves Crossfit workouts and craves In-N-Out burger. You can follow his updates on Twitter: @jjeffrose.