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Retirement saving requires smart strategies...
Recession or no recession, the baby boom generation is about to trail blaze into another new era -- retirement. Never willing to accept the status quo, baby boomers are already redefining the outmoded image of the "golden years." Forget about endless days spent in repose. This group seeks an unprecedented time of adventure, travel, creativity, and new business pursuits.
While these exciting changes will redefine aging, will baby boomers be able to finance their adventurous plans?
Today, many people age 50 and older have not yet begun to save for retirement or have amassed wholly insufficient funds.
If you are in this age group and find yourself facing an underfunded retirement, it is not too late to take charge. There are plenty of things you can do -- right now -- to get on the right track. Here are some ideas:
* What's it going to take?
First, you need to estimate how much money you will need to fund your lifestyle in retirement. Once you have an idea of the amount, you can work toward fulfilling that goal. You may need all of your current annual income in retirement, or you may need a percentage of it. In most instances I counsel my clients to strive for 100 per cent of their current income. That way they will not be disappointed should they come up a bit short, or should retirement expenses run higher than anticipated, or additional travel or costly hobbies enter the picture. Bottom line -- when it comes to money, more is always better.
* Don't miss the boat.
If your employer offers a retirement plan, contribute as much as you can -- especially if your employer is matching your contributions. Who can argue with free money... especially free money that enjoys compound growth without the impediment of tax? Make sure you contribute enough to benefit from all of this "free" money, which can add up significantly over time.
* Create a spending plan.
In other words, make a budget. Many people think a budget will be restrictive, but look at it this way: You can spend now, or you can have the money to afford your dream adventures in retirement. It is very important that you pay down debt now and, furthermore, do not accrue new debt. Examine your spending habits and replace some of your discretionary spending with savings.
* Take some initiative.
On top of contributing to your employer's plan, you can and should be saving even more by opening your own self-directed Registered Retirement Savings Plan. Contributions are fully tax-deductible, and earnings and growth are tax-free -- until drawn down in retirement when withdrawals are fully taxable at your then-current tax rate. Maximum contribution for 2009 is $21,000. This is an income-tested amount, based upon 18% of earned income, to a maximum of $21,000 for the current year. Remember any contributions to your employer-sponsored plan will reduce the amount you can contribute to your self-directed plan.
* Hang your shingle.
Many boomers hope to start their own businesses in retirement. But why wait? If you begin your entrepreneurial efforts now, your business has the potential to be in full swing by the time you do retire, and any profits between now and then can be added to your savings.
* Move it or lose it.
It's very likely that your home may have significantly increased in value since you first bought it. You may have already paid off the mortgage. With children at or near adulthood, do you really need that extra space? Selling now and moving to a smaller, more affordable location will allow you to transfer the equity in your home into a savings vehicle.
* Why quit?
If you want to cushion your retirement savings, consider staying on the job a little longer. Many people actually leave retirement to reenter the workforce because they feel more fulfilled in a working lifestyle. Others seek part-time work, consulting, or entrepreneurial endeavours. If any of these scenarios resonate with you, you will earn more money each year to support lifestyle, and you may be able to put off drawing down your savings. This has a significant impact... think about it -- if you retire at age 57 from a job that pays you $100,000 per year, instead of working to age 60 (three years later), you will have drawn down $100,000/year, or $300,000 from savings, removing these funds from your retirement cash hoard. These funds will never be replaced. If instead, you retired at age 60 -- this $300,000 that would have been spent supporting lifestyle for the previous three years will grow and serve your financial needs throughout retirement. You only have to see the difference on a spreadsheet to marvel at the amazing impact it has on retirement cash flow.
Regardless of which options you choose, time and compounding will be to your benefit as you save. Each year that your savings remain untouched allows more time for growth potential. The baby boom generation intends to redefine retirement as we know it. With a few steps in the right direction, you will have the resources to usher change into a whole new era.
Be sure to speak with a financial advisor to discuss how these options might apply to your circumstances, and have a carefully crafted retirement plan created specifically for you, to guide you through the quagmire of retirement options and strategies out there.
