5 Things You Should Do to Prepare for Retirement

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Retirement Checklist Planning for retirement is like running a marathon. You should set a steady pace and keep going. You don’t want to reach age 60 to discover that you can’t retire in five years because you didn’t save enough. You should have a strategy in place to reach your goal and do something each year that moves you closer to realizing it. Here are five things you can do this year to help you reach your retirement goals.Review your Social Security Statement – Everyone who has paid into the Social Security system and is not drawing benefits should be receiving an annual statement. Many people barely take notice of the statement other than to note what their monthly check will be at retirement. This is useful information but what you should pay attention to is the record of earnings. Check that your earnings are being recorded correctly. Your monthly benefit is based on your earnings history. It is a lot easier to get this fixed if you do it right away. You will be required to show proof of earnings and Social Security taxes paid. Most people can produce this easily for the last couple years. Going back 10 years is a lot harder. Review your statement today and make sure you are getting credit for the money you’ve been putting into the system.

NOTE: This is the last year Social Security will be mailing statements. See “Hold on to Your Last Social Security Statement”.

Prepare a Budget – You need a plan to control spending and the best way to plan is by using a budget. A budget does not tell you what you can and cannot spend money on. You make those decisions. The goal should be to spend less than you earn. Prioritize your savings so that you are saving something out of every paycheck. Developing this habit early on will help you reach your financial goals sooner. Shoot for a minimum savings of 10% each pay. Try to increase the percentage every time you get a raise. The more you control spending the more you will save and the sooner you will be able to retire.

Maximize your 401(k) Match – Many employers will match a percentage of the contributions their employees put into the company 401(k) plan. You should contribute at least as much as the employer will match. If your employer matches a certain percentage dollar for dollar, that’s a 100% return on your investment from day one. On top of the employer match, you get tax benefits to boot.

Make a Roth Contribution – You don’t want to have all of your retirement savings in a 401(k) plan when you retire. If you do, every dollar you try to spend in retirement will be taxable. Some of your savings should be accumulated in a Roth IRA where the withdrawals will be tax-free. You can contribute up to $5,000 in 2010 if you have at least that much in earned income ($6,000 if you are age 50 or older). Those with incomes over $105,000 ($167,000 for joint filers) cannot make a Roth IRA contribution directly. They can make a non-deductible IRA contribution and then convert it to a Roth.

Get Out of Debt – I know this probably doesn’t sound like it will help with retirement but it will. The truth is you are probably in debt because you haven’t learned to control your spending. Just making the decision to get out of debt will subconsciously help you reduce spending which will ultimately lead to increased savings. Besides, you don’t want to go into retirement and still be making debt payments. The first step is to make the commitment to no more borrowing. Then list all your outstanding debts from the largest to the smallest. Concentrate additional debit payments on the smallest debt first. After one is paid off, roll those payments into the next smallest debt and keep going until you are debt free.

We’ve all heard that the best way to eat an elephant is one bite at a time. Many people think that retirement planning is too big of an elephant to tackle. But it doesn’t have to be. Take small steps, do something year after year and watch your savings and investments grow. It won’t be long until you’ll be able to look back and see that it wasn’t that tough after all.

Rick’s Insights

  • This is the last year the Social Security Administration will mail you a statement (See June 3, 2011 Blog). Budget cutbacks have the annual mailings. You will need to keep good records and periodically verify that Social Security is recording
    your earnings properly.
  • How you spend money is more important that how much you make. You will never be able to earn enough to become financially independent if you can’t control your spending.
  • Everyone can make a Roth contribution since 2010. When you earnings exceed the income threshold, contribute to a non-deductible IRA first and then convert it to a Roth IRA immediately. Pay attention to the Pro-Rata Rule if you have other IRA accounts.

Will Your Money Last Through Retirement?

No one wants to run out of money. But without goals and a solid plan,
how can you know for sure whether you’re on the right track?

Will I be able to maintain my current lifestyle?

What will my monthly income be in retirement?

Can I protect my hard-earned savings and still
have the income I want?

Rodgers & Associates answers questions like these every day.

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