Retirement age comes for everyone eventually, but not everyone will feel prepared for it when the time comes. Many people worry about how much to save or whether it's too late to start saving. They worry about knowing how and when to start withdrawing their money and what kinds of accounts they should invest in.
Some of these questions have easy answers, and others require more finesse, which is why working with a financial advisor can be an important part of the retirement planning process. But in the meantime, here's are some common guidelines and factors to consider.
Plan ahead
When possible, you should begin saving for retirement as soon as you start working. A general rule of thumb is to save 10 to 15 percent of your income per year starting at age 25. You can also invest in more stocks or other higher-risk portfolio options at an early age when you have a long retirement horizon to weather possible variations in the stock market.
You can begin saving for retirement at any age, but you'll need to save more each month if you start later in life. The exact amount you'll need will depend on your lifestyle, the amount of social security or pension you'll be drawing from and whether you're single or married.
At the same time you're saving for retirement, it's a good idea to put money away in a more liquid type of savings account for emergencies. Withdrawing money from a retirement account before age 59 1/2 can earn you an extra 10 percent tax.
Apply for Social Security at the right time
Those who have reached or are nearing 62 should think about when to apply for Social Security. The minimum age to begin collecting it is 62, but you won't receive 100 percent of what you're qualified for until 66 (or 67, depending on your birth year), so waiting a few extra years will net you bigger returns in the long run.
You may even choose to defer applying until age 70, as each year you delay past your full retirement age will net you an 8 percent boost in benefits each year. Don't bother delaying past age 70, though, as you'll see no further increase in your benefits and you'll only lose out on the money you're owed.
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Learn more about required minimum distributions (RMDs)
Once retirement comes around, you'll still need to make ongoing decisions about when to start withdrawing funds from retirement accounts and how much to withdraw.
“We have found that many of our clients don’t know where to turn to address RMDs, or required minimum distributions, which may lead to very expensive tax consequences,” said Alan E. Becker, the president and CEO of Retirement Solutions Group(RSG).
Most retirement accounts require you to start withdrawing a certain amount each year by the time you're 70 1/2. If you don't withdraw the required amount, the IRS will tax you 50 percent of the unwithdrawn money.
Seek advice from professional financial advisors
Planning for retirement isn't a one-time operation. It's something you'll need to revisit through the years leading up to retirement, revising as necessary when jobs and lifestyles and family needs change. Your risk tolerance will decrease with time, as well, which is why it's important to make sure your retirement funds are being allocated wisely. A financial advisor can help you decide what kind of retirement package works best for you.
“Think of it like you would planning for a hurricane versus a tornado — you typically have time to plan for a hurricane, so take advantage of that time now so you are well-prepared for any potential storms ahead," said Becker from Retirement Solutions Group(RSG). "Don’t let it turn into a reactionary ‘tornado approach’ to financial and retirement planning.”
Ready to start planning your retirement or wondering how to manage your current retirement accounts? By utilizing its proprietary “Round Table Retirement Process,” the team at RSG could assist you “to and through” the journey we call retirement. Call 913-685-9422 or visit Retirement Solutions Group of Kansas Citytoday for more information.
