Although your retirement may be special to you, having some rules to follow might be helpful. It may sound right to review such rules in the future. For instance, experts formerly referred to retirement as a three-legged stool comprised of a pension, Social Security, and personal savings. This concept does not apply to most individuals nowadays, or at least not to those who work for a private-sector business.
Fewer workers have pensions that guarantee monthly payments for the rest of their lives. There is much concern over Social Security
- Also Read: 3 Reasons Certain Federal Employees Can Retire Years Earlier Than Their Peers Without Penalties
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- Also Read: Roth IRA Basics for Beginners: What’s There to Learn?
In March, almost ten million Americans applied for unemployment benefits. The following are a few of the rules that should change.
Old rule: Make retirement savings your primary concern.
New rule: Make clearing debt, particularly high-interest debts, a primary concern.
The longer you delay paying off debt, the more likely it may cause you to fall short of your retirement savings target. You’ll discover that you spend such a large portion of your income on interest on your loans that you feel unable to save. As a result, debt repayment is just as critical as retirement savings.
If you have high-interest credit card debt, you should make it a point to pay it off. Student debts carried over many decades may accumulate and become a financial burden. The longer you have before retirement, the more attention you should devote to debt repayment. If you want to retire at 65 and are still in your 20s, 30s, or even 40s, you can afford to slow down your retirement savings to pay off debt, especially if it is high-interest debt.
Old rule: Your home is an excellent investment for retirement.
New rule: Your home is not a good retirement investment.
While your property is an asset, it is illiquid, which means that you cannot rapidly access the equity if you want cash. Nonetheless, for most Americans, their primary asset is their house.
In the past, many retirees were unable to retire because they did not have sufficient savings. Because of this scenario, it’s good advice to convert your property into a super-sized source of retirement income by using a reverse mortgage. However, today’s low-interest rates on mortgages may impact a reverse mortgage’s ability to provide funding for an extended period.
Old rule: You will need between 70% and 80% of your pre-retirement earnings.
New rule: You will need to replace all of your pre-retirement earnings.
Do not underestimate your retirement expenses. People believe their expenditures will decrease after retirement since they will not be commuting to work or doing various other tasks linked with that period. However, additional costs often supplant the ostensible retirement funds. Many retirees still have mortgages, are responsible for housing and car maintenance, and spend money on grandkids and other families. It is preferable to prepare for 100% of your pre-retirement income. It is the more prudent course of action and is not harmful to have more money saved than necessary, but the reverse is a problem.
Old rule: Retirees should significantly minimize their stock exposure.
New rules: Retirees should not avoid stocks.
Inflation is among the most significant threats facing retirees. While many individuals understand the risks associated with investments, they sometimes neglect the risks associated with inflation. Costs of goods and services, particularly medical care after retirement, are anticipated to outpace the growth of conservative assets. It is critical to identify an acceptable level of portfolio risk that balances these hazards. Consider this question: How will inflation affect my investments?
Old rule: Set aside at least 10% of your earnings for retirement.
New rule: Set aside 15% of your earnings for retirement.
Saving a high proportion of yearly earnings is one element that contributes to an increase in employees obtaining billionaire status in their 401(k). According to Fidelity, they contribute at least 15% to their employer-sponsored retirement plan. Workers often achieve this proportion via a mix of their contributions and company matching contributions.
Old rule: You may freely withdraw early from individual retirement accounts (IRAs).
New rule: Be cautious about taking money out of your IRA if not retired.
In the past, IRAs were a great source of funds to pay for non-retirement costs such as purchasing a home and meeting other expenses. In that era, individuals were allowed to use IRA funds for any purpose. Today, however, the rules are different. While taking an IRA withdrawal may be desirable for emergency reasons or certain education costs, it has significant penalties. The penalty is 10% of the amount withdrawn early, in addition to income taxes on the sum.
Contact Information:
Email: [email protected]
Phone: 7705402211
Bio:
Mack Hales has spent the past 4 decades helping clients prepare for retirement and manage their finances successfully. He also works with strategies that help clients put away much more money for their retirement than they could in an IRA or even a 401k. We involve the client’s CPA and/or their tax attorney to be sure the programs meet the proper tax codes.
Mack works with Federal Employees to help them establish the right path before and after retirement. The goal is to help the client retire worry-free with as much tax-free income as possible and no worries about money at risk of market loss during retirement.
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Mack has resided in Gainesville, GA since 1983, so this is considered home. Mack is married to his wife of 51 years, has two boys and five grandchildren.
