10 Retirement Resolutions
The New Year always brings the urge to make promises to yourself–to eat healthier, exercise more, lose weight, and, perhaps most difficult of all, to save more money for retirement. A full 70 percent of Americans are concerned about not having enough money for a comfortable retirement, a recent Fidelity Investments study found.
So, as the New Year approaches, here are some strategies that won't do anything for your waistline but might improve your peace of mind as you plan for retirement.
Contribute to an IRA. Individual retirement accounts (IRAs) are currently the largest repository of retirement funds in the United States. Some 56 percent of Americans expect to rely on IRA savings for retirement, Fidelity found. But as of 2004, only 29 percent of families owned an IRA or Keogh, with a median value of $30,000, according to the Employee Benefit Research Institute (EBRI). The deadline for making a 2006 contribution to a tax-advantaged IRA is April 16, 2007, or the date you file your federal tax return.
Max out your 401(k). "I try to fund all the retirement accounts I can to the max," says Ed Slott, the author of Your Complete Retirement Planning Road Map. "The way to really do well is to keep putting more money in to keep funding as much as you can." Be sure to contribute enough to get your employer's full match. You should also account for all the 401(k) plans you've had at previous employers and consolidate them in your current employer's plan or transfer them into a rollover IRA, says Dallas Salisbury, president of the EBRI. Rolling a 401(k) over into an IRA allows you to avoid most fees and penalties.
Examine your investment portfolio. The New Year is the perfect time to look over your various retirement accounts and make sure you are getting a good return on your investments. "Over the long term, diversified stocks and bonds should return you 7 percent," says Jonathan Pond, the author of You Can Do It! The Boomer's Guide to a Great Retirement. "The average investor makes about 4 percent because they are perfectly happy to hold on to underperforming investments or they don't select good mutual funds or good investments." Pond recommends a diversified portfolio, selecting good investments, and continuously monitoring those investments to make sure that you average at least a 7 percent return.
Get rid of credit card debt. "Pay off your credit card debt because your investments will not be rewarding you at the same rate as your credit card debt," says Ted Allrich, the author of Comfort Zone Investing. Credit cards carry interest rates that can top 20 percent, as well as late fees and penalties. That is much higher than the return you can expect on most investments.
Pay down your mortgage. "Try to figure out ways to reduce your mortgage rather than add to it," says Pond. "You don't want to be paying off your mortgage when you're 80." He also recommends downsizing to a smaller home when you retire or even while you are still working. "Many people who live in urban areas can reduce their living expenses by up to 40 percent," he says, "simply by moving to lower-cost and often more climate-friendly locales."
Review your Social Security statement. Watch for your Social Security statement in the mail each year, says Salisbury. Be sure to review it for accuracy and contact the Social Security Administration with any corrections.
Save before you spend. "Pay yourself first, and find ways to invest automatically," says Heather Dzielak, senior vice president of retirement income security ventures for Lincoln Financial Group. "Get in the discipline of setting aside money for your retirement." Many companies will let you automatically deposit a portion of your paycheck into savings or investment accounts, so you can save it before you even get a chance to spend it. Martin Weiss, president of Weiss Research Inc., recommends prioritizing retirement even above your holiday spending. "I know it sounds a little bit selfish, but the holiday spending and undersaving is the big hit to the nest egg," he says. "If we could save for a nest egg the same amount that we spend for gift giving during the holidays, that one change alone could have a very dramatic impact on the quality of our life during retirement."
Plan for the financial transition. It's important to develop a plan to transition your retirement savings into a stream of retirement income. "It's the way you take it out that will determine how much you and your family keep and how much goes to the government," says Slott. "If you take it out the wrong way, it all goes back to the government." A financial adviser can help you determine the most tax-advantaged way to withdraw money from retirement accounts. You'll also want to double-check the beneficiary forms on all your retirement accounts. "The beneficiary form is the key document that's going to determine who gets all this money you've saved," says Slott. "Most people think that somebody else took care of this, and then they are surprised to find out that they didn't."
Set a retirement savings goal. Only 42 percent of workers have actually calculated how much they need to save for a comfortable retirement, according to EBRI. And 41 percent of those who did the calculation created their own estimate or guessed. It's a good idea to sit down with a financial adviser and calculate exactly how much you will need to cover your expected retirement expenses or use an online calculator or retirement worksheet.
Stick to your other resolutions as well. It can't hurt to eat right and exercise–and it might actually pay off. The EBRI estimates that a couple age 65 retiring today will need $295,000 to pay for health insurance premiums and out-of-pocket expenses during retirement, not including long-term care, assuming the average life expectancy of 82 for men and 85 for women. So, staying as healthy as possible, making sure you are always covered by health insurance, and investing in preventive care could protect your retirement nest egg.