Summary: In this article you’ll learn how to invest for retirement at age 30, 40, 50 and 60. Discover tips and strategies to improve your success.
Table of Contents
In this ultimate guide you’ll learn how to invest for retirement in your 30s, 40s, 50s, and 60s. While upon reading that statement, you might be tempted to close your browser’s window, take a moment to run a few calculations. Ask yourself what age you want to retire and how much money you will need to see you through retirement (while living the lifestyle that you want to lead). In short, read on to discover not only how to invest for retirement, but you can do so effectively.
How To Invest for Retirement at Age 30
In this section you’ll learn how to invest for retirement at age 30. As you will discover, there are several strategies that you can employ in order to begin investing. With this in mind, it is important to note that you can’t implement all of the following tips at once. In fact, you might discover that only one of the tips is currently applicable in your life. Conversely, you might discover that you want to explore a few, while leaving the others for a later period in life. The key to remember is that your investment goals and strategies are just that … yours to customize and change to best meet your current (and future) financial goals and needs.
5 Tips for Starting Retirement Savings at 30
It’s never too early to start financial planning in your 30s. In fact, through the following five tips you can not only begin saving for retirement, but you can also make your money work for you.
30s Retirement Tip #1 - Make a List of Your Financial Goals
Thinking about retirement might seem like a moot point, especially if you are 30 years old or younger. However, as scary as it might seem, retirement will be here before you know it. With this in mind, the first thing that you can do to prepare for it is to make a list of your financial goals.
Immediate Family Needs
Understanding your immediate family needs is best done with a series of questions.
- What are your financial obligations to your family?
- Do you have a mortgage to pay?
- Do you have insurance and car payments to make?
- Do you have any immediate medical bills to pay?
- If you have children, have you begun saving for their college education?
- Do you have school tuition to pay (elementary, middle, or high school levels)?
- Are you the primary bread winner (and thus responsible for not only bills, but putting food on the table and paying for all essential items)?
Creating a budget is a great way to not only start thinking about your financial goals, but to also create a realistic plan to achieve them within a designated timeline. In this vein when creating your budget, you should make five columns.
- Essentials. — This column is for those items that you have to pay for each month. For example, rent (or a mortgage), food, bills, insurance, etc.
- Loans. — As its name suggests, this column is for any outstanding loans that you might have, such as student loans or medical loans. It is advisable that you pay off the majority of your debts before you begin saving, otherwise you will be stuck paying additional money due to interest fees.
- Rainy Day Fund. — This column should be a portion of your income that is designated for emergencies and unforeseen circumstances. For example, you are involved in an accident and have unexpected medical bills to pay; or you lose your job and need to still pay rent.
- Splurges. — This should be a small portion of your income that is dedicated to those occasional splurges. Much like a diet, if you don’t give yourself the opportunity to occasional splurge, then you are less likely to see your plan all the way through.
- Savings. — This is often the hardest part of a budget, as it requires you to actively put a designated amount of money aside every month. If you make a budget that aligns with your financial goals, and stick to it, then your savings column should be filled every month (no ifs, ands, or buts).
As you make a list of your financial goals, it is imperative that you remember to plan for your actual retirement needs. To do so, ask yourself the following types of questions:
- How much money do you want to spend each year during retirement?
- Where will you retire? Are you planning on owning a home, joining a retirement facility?
- How will you pay for medical expenses that are often associated with the elderly? For example, will you enter a retirement community, hire in-home care, or have relatives that will look after you?
The bottom line for this tip is simple, in order to start planning and actively investing for your future retirement, then you need to create a strategy that keeps your financial responsibilities in perspective. Without this perspective, you will be hard pressed to a) stick to your budget, b) meet your financial goals, and c) retire when and how you want to.
30s Retirement Tip #2 - Take Advantage of Compound Interest Now to Retire with $1 million!
Did you know that the earlier you start saving for retirement the better? The reason for this simple strategy is compound interest. The short definition is that compound interest is the addition of interest to the principal sum of a loan or deposit. In other words, as its name suggest, you can earn interest on interest. If you want to achieve the “golden rule” of retirement (i.e. saving at least a million dollars for your retirement years), then you can and should tae advantage of compound interest. Let’s say that you save $400 a month starting when you were 25. Let’s also assume that the funds you save earn a modest return rate of seven percent year over year. By the time you are 65 you will have saved $994,207 simply by putting away $4,800 each year.
30s Retirement Tip #3 - Diversify Your Retirement Portfolio
It’s not enough to simply save cash every year; after all, your cash will only earn a small portion of interest each year. Instead, you should diversify your investment portfolio. To do this, you can invest in a wide variety of assets including:
- Residential real estate (including turnkey rental properties).
- Mutual funds (these funds naturally offer lower risk and diversification).
- Stocks (the lower risk, typically the lower reward; however, you are investing for the long term, so sometimes low risk stocks are great for a retirement portfolio).
- Commodities (the commodity market can vary; however, with the help of an investment consultant you can choose commodities that meet your financial strategy goals and needs).
- Open a traditional or roth IRA (there are advantages and disadvantages to both; be sure to consult with a financial advisor to determine what retirement account is right for you).
The moral of the story is simple, by allocating retirement funds in different ways, you can not only diversify your portfolio, but you can also spread out the risks associated with investing, while simultaneously increasing the potential for higher returns. No matter how you plan to diversify your retirement portfolio, it is important that either every quarter or at least twice a year, you check in on your retirement assets to make sure that you are staying on track. With the help of a financial advisor, you can review your assets, analyze their performance, and determine if you have stayed on track to meet your retirement goals. Keep in mind, that markets fluctuate, so as long as you are doing your part (i.e. actively contributing to your retirement fund), then your financial advisor will do his best to properly manage your account, and thus help you meet your financial goals.
30s Retirement Tip #4 - Decide If You should Save for Retirement or Pay Off Debt
Should you save for retirement or pay off debts? While this question doesn’t have an black and white, yes or no, response it is an important question to consider. With this in mind, only you can answer the question by analyzing how the interest rates compare. As was previously discussed, your retirement account can earn compound interest and thus help you grow your savings year over year. However, your debt also earns interest. To decide if you should save for retirement or pay off your debts, you will need to compare the interest rates and then determine which financial strategy is more profitable. For example, if you are losing $500 a year in interest rates due to debts, but earning $600 in interest rates via retirement savings, then you might choose to pay off your debts more slowly. This being said, keep in mind that within the latter scenario you are in fact only earning an extra $100 (since $500 of the interest earned from your retirement account must be applied to the interest rates that are associated with your debts).
30s Retirement Tip #5 - Take Advantage of Tax Deductions for Retirement Contributions
Did you know that there are several tax deductions that can be applied to your retirement contributions? While these tax savings change each year, generally speaking, you are rewarded when you contribute to an IRA or 401k retirement account. The tax deduction that you receive will depend on a) the amount of money that you contributed (typically there is a maximum amount), and b) your tax bracket. With this in mind, once again a financial advisor can help you to determine how to best make retirement contributions that result in the maximum tax deductions. Additionally, your financial advisor will be able to tell you how different assets, such as real estate, can result in higher tax deductions (especially when you use an IRA to help fund these investments). The moral of the story is simple, with the right assets, and the right retirement account, you can use tax deductions to save more money upfront. This money can then be used to make future high yield asset purchases within your retirement account.
Investing for Retirement at Age 30: Conclusion
At the end of the day, whether you are saving $100 a year or $100,000, it is never too early to start saving for your retirement. Whether you choose to invest in real estate for early retirement, want to diversify your portfolio by investing in mutual bonds, stocks, and commodities, or prefer to leverage a multi-prong approach, one thing is certain … the sooner you can start saving for retirement, the better. To learn more about how you can create a dynamic approach to your retirement, that begins with establishing your financial goals and needs, contact an investment consultant today.
How To Invest for Retirement at Age 40
In Part 1 of this article we explored investment strategies for 30 year olds. Now, in this second portion, we will examine how to invest for retirement at age 40. In this section you’ll discover that financial planning changes significantly in your 40s. In fact, determining how you want to invest in your 40s will require you to not only be willing to try different tactics than your 30s, but you will also need to create a strong financial plan, as well as a diverse investment strategy. Read on to discover how much you should be saving and how you can leverage powerful investment tactics to your advantage.
Average Retirement Savings Statistics
Did you know that approximately half of all American households have no retirement accounts? With this unfortunate statistic in mind, it is important that you don’t find yourself in a bind, especially as you enter the most lucrative years of your chosen career. In fact, for many people, their 40s are the decade when they make career advances and start to earn higher wages. As a general rule of thumb, you should plan on saving 10 to 15 percent of your salary every year from the time that you are 30.
Keep in mind that the aforementioned funds should ideally be placed in a retirement account, and should not be confused with the “rainy day” savings fund that you keep for unexpected emergencies. While you might be able to dip into your savings account for unexpected emergencies, in the ideal situation you shouldn’t pull funds from your retirement account(s) until you are actually retired. Not only will you potentially pay hefty early withdrawal fees, but pulling from your retirement accounts will make it that much harder for you to retire when and at the lifestyle that you want to enjoy.
Related article: How to Retire Early at 40 Through 60+ Years Old
How Much Retirement Savings Should I have at 40?
As you make a retirement plan, the first question that you should be asking yourself is, “am I currently saving enough for retirement?” If the answer is “no,” then you should be discovering what you need to change. Here are a few helpful questions that you can ask to get yourself back on track for achieving the recommended retirement savings by age (or as you’ll see in our series, by decade).
- Now that you are in your 40s, did you complete all of the steps that we outlined in Part 1 of this series? In other words, did you begin planning for your retirement in your 30s or are you already behind schedule?
- Have you created retirement accounts? If so, are you properly managing those accounts with the right types of assets?
- Are you still in debt?
- Have you begun to think about your future medical needs and the fact that the average American will spend $200,000 on medical expenses during their retirement years? (As a side note, this question will be further explored in Parts 3 and 4 of this series, when we begin to look at the differences between Medicare and Medicare Advantage.)
- Do you have a budget for your current lifestyle, as well as a retirement budget?
By answering the above questions and working with a trusted financial planner, you can begin to determine how much you should have saved by the time you are in your 40s.
6 Tips for Starting Retirement Savings at 40
It’s never too late to start financial planning in your 40s. In fact, through the following six tips you can not only begin saving for retirement, but you can also make your money work for you.
40s Retirement Tip #1: There’s Only One Reason to Delay Saving for Retirement - Get Out of Debt
It is virtually impossible to reach your retirement savings goals if you are still in debt. In fact, being in debt might be one of the only reasons that you should delay saving for your retirement. To determine if it is more lucrative for your to save for retirement or get out of debt, you will need to make the following calculations,
- Determine the amount of money that you are spending on interest rates due to debt.
- Determine the amount of money that you would be placing in a retirement account (if you chose to only pay of the bare minimum amount of debt each month / year).
- If you were to place the money in a retirement account (instead of paying off all of your debt), calculate what that money would earn you (assuming that you invest it in an asset with an average eight percent return).
- Determine which figure is greater: the money you spend paying of the debt, or the money that you would earn by instead investing that money.
To put the above calculations into perspective, let’s say that each month you lose $500 on interest rates due to acquired debt. Now let’s say that if you applied that money to a retirement account, you would instead earn $100 each month (keeping in mind that you would still be prolonging your period of debt). With these figures in mind, it quickly becomes clear that it is far more lucrative for you to simply pay off your debt before you begin to save for retirement.
40s Retirement Tip #2: Before You Start ... Establish an Emergency Fund
We said it once, but we’ll say it again because it is so important to your financial planning … retirement accounts and emergency funds are not the same thing. Before you can even contemplate saving for your retirement, you should make sure that you have an established emergency fund of at least six months of expenses. This emergency fund can be comprised of both cash and liquid assets, so that the fund can continue to grow via dividends and asset growth. However, your emergency fund should not be the same as your retirement account. Remember that there are typically hefty fines associated with early withdrawals from certain types of retirement accounts, which is why you want to have a separate emergency (or “rainy day”) fund for those unexpected and typically costly life events.
40s Retirement Tip #3: Don’t Take on Additional Risk to Make Up for Lost Time
In the first section of this article, we discussed how your 30s are often the time when you can take the most risks with your portfolio. In this vein, if you feel that you are behind schedule in regards to your future retirement, then you should not simply add additional risk to your portfolio to make up for lost time. While higher risk investments tend to yield higher profits, they also can cost you quite a bit of money should they not pan out. Instead of adding additional risk to your portfolio, you should focus on diversification and maximizing retirement contributions.
40s Retirement Tip #4: Use a Retirement Calculator
Did you know that a retirement calculator can help you to more accurately determine how much you should be saving each year for your future retirement? This handy tool will take into account the following factors:
- Your age;
- Your yearly contributions;
- Your acceptable level of risk;
- The rate of return on your assets (keeping in mind that lower risk assets typically have lower returns);
- The anticipated Social Security that you will receive (dependent on what year you plan on accepting Social Security);
- The amount of money that you plan on spending each year during your retirement;
- The number of years that you plan on being retired; and
- Any funds that you have already contributed to your retirement accounts.
Through the above factors, the retirement calculator will tell you a) the age that you can plan on retire, and b) the age that you will potentially run out of funds during your retirement.
40s Retirement Tip #5: Take Advantage of your Company 401k Match
Does your company offer a 401k match? If so, then you should make sure that you are taking advantage of this matching contribution each month. For example, your company may match 100 percent of your 401k contributions up to a certain percentage of your total compensation. Alternatively, they might plan on matching a percentage of contributions up to a set limit. In the latter scenario, you will need to contribute additional funds to your plan in order to receive the maximum available match. With this in mind, take a moment to determine if a) your company offers 401k matching, and b) how you can maximize their contributions to your retirement account.
40s Retirement Tip #6: Invest in Real Estate
As part of your retirement plan, you should consider investing in real estate during your 40s. By purchasing buy and hold turnkey investment properties, you can create the opportunity for passive monthly income that can be applied directly to your retirement savings. In fact, you can even use a self-directed IRA to purchase certain investment properties, which not only offers the advantage of receiving income from monthly rents, but also offers a number of tax advantages. In addition to investing in residential real estate properties, you can further diversify your investment portfolio by exploring the advantages of investing in commercial properties and real estate syndications. To learn more about how you can invest in real estate to generate the retirement funds that you need, you should speak with a trusted financial advisor and investment consultant.
Investing for Retirement in Your 40s - How to Make Sure You’re On Track
Knowing how to invest in your 40s will require you to assess your financial situation, make a retirement budget, and thoroughly analyze your investment choices. In addition to these tasks, you can also make sure that you are on track by completing the following steps.
- Open a Separate Roth IRA. — Did you know that you can have more than one retirement account? When you have finished maxing out your 401k, you should turn to an IRA account and maximize your yearly contributions. If you are eligible to contribute to a Roth IRA, then you can place aside funds that will grow in a tax-free environment. You will even be able to avoid capital gains tax on these investments.
Buy Good Insurance to Protect Yourself. — Through health, car, term life, and disability insurance you can more readily protect yourself and your assets. These entities are especially important should you unexpectedly be sued as a result of an accident. Remember that during a lawsuit, a person can go after your assets, unless you have taken the steps needed to protect them. To learn more about how an LLC and other measures can protect your assets, you should speak with your lawyer, financial advisor, and investment consultant.
- Invest as Much as You Can Afford. — As was previously discussed in this post, you should begin saving for retirement once you have paid off your debts. Additionally, you should only invest what you can afford to lose. The latter mentality will help you to determine your acceptable level of risk. For example, mutual bonds are often considered a low risk asset. They provide either dividend or yearly earnings and use diversification to spread out risk. However, if you want to earn additional funds, then you might consider a higher risk asset, which will inevitably have a higher rate of return. In this vein, it is important to remember that no asset is “guaranteed,” which means that you should only invest as much as you are willing to potentially lose.
Investing for Retirement at Age 40: Conclusion
Your 40s are often a great time for you to not only begin saving for retirement, but to also analyze your financial situation. Whether you have actively started to save for retirement, or are just beginning the process, one thing is certain, knowing how to invest in your 40s is made easier when you work with a trusted financial advisor and investment consultant. Together, you can create a financial and investment strategy that will generate the funds you need to enjoy your golden years of retirement. In conclusion, as a general rule of thumb your 40s are the time when you want to ensure that you are out of debt, maximizing retirement contributions (especially if 401k matching is offered by your employer), and diversifying your portfolio to minimize risks while maximizing returns.
How To Invest for Retirement at Age 50
In this section you’ll learn how to invest for retirement at age 50. Why is it so important? Well, did you know that the only 54 percent of baby boomers (ages 53 – 71) have a designated retirement savings? If you are part of this group, then congratulations, you have placed yourself on the right path towards retirement. If, however, you have not begin to save, then don’t worry. The following tips will help you to create a retirement plan, and an investment strategy that will strengthen your portfolio, provide diversification, and generate the assets needed for you to reach your financial goals.
How to Know When to Retire
Do you wonder how you can know when to retire? The key to answering this question is to remember that you can’t control everything about your future. However, what you can control, is your current situation so that you are prepared for your future retirement. With this in mind there are five factors that you should carefully consider if you are considering an early retirement.
- Financial Situation. — As part of your well-earned retirement, you will no longer be working, which means that your investment portfolio will quickly become your primary source of income. With this in mind, before you can retire, you have to make sure that your bank account (and its assets) are up to the financial task at hand. A good rule of thumb is that your retirement savings should be approximately 25 times larger than the sum that you anticipate withdrawing each year. The reason for this large discrepancy is simple. The more funds that you have, the more comfortable you will be during your retirement and the easier it will be for those assets to recoup the money lost when you make a withdrawal.
- Quality of Your Health. — If at all possible, you want to retire while you are still healthy enough to live an active lifestyle. In other words, you don’t want to spend such a long period working that you miss out on the opportunities to travel or participate in certain activities due to poor health. Conversely, you don’t want to keep working if it is driving you towards poor health.
- Health Care Benefits. — Does your job provide excellent health care benefits? If so, do you have the funds needed to pay for private health care if you retire early? When answering these questions, keep in mind that Medicare and Medicare Advantage do not start until you are 65 years old, which means that if you retire early, and you previously received your health insurance through your job, then you will have to pay for private health care until you qualify for Medicare.
- The Market. — Is the market bullish or bearish? Keep in mind that during the first decades of your retirement, your portfolio is most likely to perform well during a bullish market. If, however, the market is bearish, then you need to speak with your financial advisor to determine if your assets are strong enough to a) withstand withdrawals, and b) to recover during the down market.
- Level of Social Security Benefits. — Retiring later will increase your Social Security benefits. In fact, if you retire at the age of 62, then you can expect to receive an approximately 30 percent reduction to your Social Security benefits. However, if you retire / start to accept Social Security at the age of 70, then you can enjoy the maximum benefits.
How Much Retirement Savings Should I Have at 50?
Knowing how large your retirement nest egg should be at 50 will depend on two key factors. These factors are your annual salary and your yearly retirement budget. With this in mind, to determine if you have “enough” savings, then you should ensure that your retirement savings meet the following requirements:
- Your savings have at least an 80 percent chance of lasting for 30 years after you retire. In other words, you have the funds needed to make your anticipated yearly withdrawals (while also accounting for rises and falls in the market).
- Your nest egg generates an average six percent annual growth (the higher the annual growth, the more likely it is that the savings will survive rises and falls in the market and / or unexpected expenditures).
- You save at least 10 percent of your income every year until you retire at the age of 65.
To apply the above factors, let’s say that you make $50,000 per year. By the time you are 50, you should have at least $175,000 in retirement savings. It is important to keep in mind that this $175,000 is in addition to other savings that you have (such as the 6 – 8 months of rainy day funds needed to pay for your expenses should your employment status change or an unforeseen circumstance arrive).
6 Retirement Planning Strategies In Your 50s
The following five tips are designed to help you catch-up on retirement savings, so that you can comfortably retire. Keep in mind that choosing the right tips to implement will depend on your personal financial situation, selected investment strategy, and retirement goals.
50s Retirement Strategy #1: Catch-up Contribution Numbers.
Did you know that when you’re over 50 you can make $1,000 catch-up contributions to an IRA account (with a typical cap of $6,000 per year)? Work with your trusted financial advisor to learn how you can best take advantage of catch-up contributions to your IRA and other retirement accounts.
50s Retirement Strategy #2: Take Advantage of Increased 401K and IRA Contribution Limits.
Once you are 50 years or older, you can begin to contribute thousands of dollars more to your 401k plan each year. Whenever possible (and especially if your employer offers 401k matching), you should plan on maximizing contributions to your retirement accounts each year. With this in mind, you want to avoid taking early withdrawals from your retirement account. If you do withdraw funds before you reach the age of 59½, then you might be subject to the 10 percent early withdrawal tax (unless an exception applies that allows you to use the funds to purchase certain assets, such as real estate).
50s Retirement Strategy #3: Get Out of Debt and Budget.
Before you can begin saving for retirement in earnest, you must first get out of debt. Additionally, you should create a retirement budget. This budget should take into account your monthly expenses, as well as funds that you’d like to spend enjoying your golden retirement years. Keep in mind that the average retiree will need $240,000 to pay for medical expenses throughout their retirement.
50s Retirement Strategy #4: Make Tax Efficient Investments.
One of best retirement planning strategies that you can implement is to invest in tax-efficient assets. Common stacks are one of the most common assets held within tax-deferred accounts. Speaking of, you should work with a financial advisor to determine what types of retirement accounts are best for reaching your financial goals. Keep in mind that from a tax perspective a traditional IRA, Roth IRA, and 401k all have advantages and disadvantages. Additionally, your financial advisor will be able to tell you which accounts should be used to purchase certain types of tax-efficient assets, such as convertible bonds and real estate trusts.
50s Retirement Strategy #5: Enjoy The Benefits of Real Estate for Retirement Income.
You can bolster your retirement savings by tapping into equity on a home that is already or almost completely paid for by selling (and inevitably downsizing). Alternatively, you can invest in buy and hold turnkey rental properties that create positive monthly cash flows. The latter cash flow can then be used to invest in other long-term properties that will subsequently generate their own continual cash flow. Crowdfunding, real estate trusts, purchasing commercial real estate, and joining real estate syndications are all other ways that you can use real estate to generate retirement savings (and passive monthly income when you do eventually retire).
50s Retirement Strategy #6: Get Retirement Disability Insurance.
Retirement disability insurance is designed to protect you from having to pay out of pocket expenses for health issues that may occur as you age. In short the insurance helps to protect your retirement fund, by instead paying for the associated medical expenses should you become too sick or hurt to work.
Investing for Retirement at Age 50: Conclusion
In conclusion, knowing how to invest for retirement at 50 is made easier when you work with a financial advisor. Your financial advisor can help you to determine the best investment strategies that will help you to make your money work for you, while simultaneously giving you the nest egg that you need to last throughout your retirement years. Speak with a trusted advisor today to discover the investment strategy that will help you meet your financial and retirement goals.
How To Invest for Retirement at Age 60
In this section you’ll learn how to invest for retirement at age 60. That’s right, it’s not too late!
You may be wondering, “am I too old to open a Roth IRA? ” If the answer is yes, don’t worry, the following article will provide you with information about how to open a Roth IRA after age 60, while also offering proven ideas for how you can assess and enhance your retirement savings. Read on to discover how you can make smart investment choices, so that you can retire at 60 (or possibly sooner).
Know Where You Stand - 5 Best Ways to Assess Your Retirement Savings
The first step on your journey towards retirement is assessing where you stand. In this vein, you must not only analyze the monetary value of your retirement savings, but you must also determine whether these assets are working in your advantage.
1- Establish Your Transition to Retirement Budget
Your retirement budget is different than the monthly budget that you have probably prepared throughout your adult life. The primary difference between the two types of budgets is income. During your retirement, it is likely that your income will drop, since you will no longer be working. With this in mind, it is important that you have a budget in plan before you begin your retirement. Without a budget, you are more likely to spend your savings at a faster than anticipated rate. Your retirement budget should include the following aspects:
- Monthly income received from investment assets (including IRA and 401k distributions).
- Anticipated daily living expenses (food, utilities, mortgage / rent, etc.).
- Predicted medical expenses.
- Fun activities (this will be dependent on how you plan on spending your retirement years; for example, you might plan on taking up a new hobby or spending extra time traveling).
2- Determine How Long Your Savings Must Last
It’s no secret that the times have changed and people are now living longer than ever. You need to make sure that your savings will last as long as you do. In fact, the latter step is an essential component of retirement planning. With this in mind, you need to ensure that your assets continue to perform throughout your retirement. To do this you can implement a few key strategies, including:
- Investing in low-risk and high quality stocks.
- Leveraging the four percent rule that states, “you can preserve your principal for years to come if you only withdraw up to four percent each year.”
- Creating passive income scenarios, such as investing in buy and hold real estate properties.
3- Have a Withdrawal Plan In Place
Your retirement strategy should have a withdrawal plan in place so that you can not only have the funds needed to last throughout your retirement, but so that you can also avoid paying excessive taxes. The key factors that your withdrawal plan should consider include:
- How much do you plan on taking out of your retirement accounts each year?
- What are the federal and state tax implications for taking money out of your retirement accounts?
- Will you be withdrawing money from tax-deferred retirement accounts, such as a 401k?
- What percentage of your funds will you be withdrawing each year?
- Do you have the funds / assets needed to continue investing and thus earning passive income throughout the year?
4- Decide on Your Healthcare Needs After Retirement - Medicare vs. Medicare Advantage
As you age and reach your golden retirement years, you will need to decide how you want to handle your medical needs. At 65 years of age, you will become eligible for Medicare or Medicare Advantage. Deciding which plan is right for you, will depend on your financial capabilities, as well as your medical needs. For example, Medicare is accepted throughout the United States by approximately 90 percent of doctors and hospitals. However, the downside to Medicare is that there will not be “one all encompassing plan.” This means that you will need to enroll in separate components. On the other hand, Medicare Advantage, a private insurance option, does have all encompassing plans, as well annual out of pocket limits. Of course, while Medicare Advantage does have several advantages, it can be quite expensive.
5- Consult with an Expert Financial Advisor
If you want to truly understand the financial worth and impact of your retirement assets, then you should take the time to consult with an expert financial advisor. Your financial advisor will be able to analyze how your assets have performed (as well as their anticipated performance) to best determine if you have the funds needed to enjoy the retirement lifestyle that you want.
60 years old and No Retirement Savings: What if I Don’t Have Enough for Retirement?
Far too often, individuals get closer to retirement only to realize that they don’t have enough money (or assets) needed to retire comfortably. In fact, as of January 2017, the average retiree received $1,360 per month from Social Security. Additionally, 33 percent of 65+ adults collected a pension each year, with the median private pension reaching $9,376 per year. Let’s say that this individual also pulls $3,000 per year from his retirement account. The latter figures means that the retiree would only have $28,696 to live on per year. For many individuals, the latter sum is not enough money when it comes to their retirement years.
To further put these figures into perspective it is important to note that Fidelity recommends the following retirement strategy.
- By the time you are 30, you should have your annual salary saved.
- By the time you are 50, you should have six times your annual salary saved.
- By the time you are 67, you should have 10 times your annual salary saved.
Let’s say that you make $50,000 per year throughout your career. By the time you are 67, you should have $500,000 saved. Additionally, you should have this money saved as both cash and investment assets (stocks, bonds, mutual funds, real estate, commodities, etc.). If you are worried that you don’t have enough funds saved, don’t worry. The following strategies can help you to increase your retirement savings.
- Take Advantage of Catch-Up Savings Provisions. — If you’re over 60, the maximum contribution for a Roth IRA is up to $6,500, yearly. By maximizing your contributions on a yearly basis you can not only enjoy the tax benefits, but you can also put your money to work by effectively investing in the right types of assets.
Delay Taking Social Security Until 70. — Did you know that if you delay taking social security, then you can in fact claim additional funds? That’s right, if you wait to take your social security until you are 70 years of age, then your delayed retirement credits will reach eight percent per year. Essentially this strategy means that at the age of 70 you will be entitled to 132 percent of your full monthly benefit, rather than the 100 percent that you would have received at aga 66.
- Pay Off Debt ASAP. — We’ve said it before in other articles, but it’s so important that we’ll say it again here. You can never truly begin to save if you are constantly in debt. Not only does your debt create higher interest rates (and payments), but it keeps your money from working for you. If you want to increase your retirement savings, then you need to pay off your debts ASAP. Once your debts are paid off, you can use your hard earned money to purchase investments that will generate additional funds.
- Investing in Real Estate – Make Your Money Work for You. — Buy and hold turnkey rental properties can generate the passive income that you need to enjoy a fruitful retirement. By working with a real estate investment consultant, you can select high cash yield properties that can be purchased in lucrative rental markets. You can then rent out these properties to not only generate passive monthly income, but to also provide the funds needed to invest in additional real estate assets. Through this strategy, you can more effectively make your money work for you.
Why It’s Important to Reassess Your Portfolio - Be Safe, But Look for Opportunities to Grow
Reassessing your retirement portfolio is an important step to take each year (or at the very least every five years). Generally speaking, many people prefer high risk portfolios when they are younger and still working. As people reach middle age, and need to provide for families and loved ones, their investment strategy tends to become less risky. Finally, as people reach retirement ages, they often want to transition their portfolios to a low risk strategy. The latter cycle can only be achieved if you remember to reassess your portfolio based on your financial goals, accepted risk level, and lifestyle. Keep in mind that your portfolio’s asset allocation should always be based on your lifestyle rather than your age. After all, while $30,000 per year might be enough for one person during retirement, your anticipated $80,000 per year retirement lifestyle will require a higher asset allocation.
Perform a Risk Assessment to Determine Aggressiveness of Investments
As times have changed, so too have investment strategies. The old rule, whereby you should take 100 minus your age, to determine how many stocks you should have in your portfolio no longer applies to the majority of the population. Instead, you should determine your investment strategy based on your individual risk assessment. As we mentioned in the previous section, your investment strategy will fluctuate throughout your life. Most often the strategy aligns with the level of risk that you are willing to take. If you want your money to work for you, without taking a high risk approach, then you might consider investing in dividend paying entities and Lower-Cost Exchange-Traded Funds (ETF’s). By working with a trusted financial advisor, you can not only determine your accepted level of portfolio risk, but you can also create the diversification needed to reach your retirement goals.
Don’t Overlook What Comes Next - The Importance of Estate Planning
As part of your retirement strategy you should take the time needed to create an estate plan. This plan should include the following components:
- Instructions for your care if you become mentally or physically disabled before you pass away.
- Business transfer instructions at the time of your retirement, disability (should it occur), and / or death.
- Name someone who will be a guardian for minor children. This person may or may not also be the inheritance manager for minor children.
- A life insurance policy.
- Minimize the impact of estate taxes, court costs, and (if possible) avoid unnecessary legal fees.
With these components in mind, there are three main estate planning options: joint ownership / joint tenancy, a living will, and a living trust. Joint ownership / joint tenancy with right of survivorship is an estate plan whereby your assets will pass directly to your spouse upon your death. A will is a legal document that contains instructions for your estate. It is important to note that a will does not avoid probate, which can quickly become a costly process for anyone who is inheriting your assets. A living trust is often the preferred estate planning option for many individuals since it avoids probate at the time of your death, can prevent the state from taking control of your assets, and brings all of your assets into one plan to offer the maximum level of privacy and protection. Unlike a will, a living trust doesn’t necessarily have to die with you. Upon your death the assets can remain in the trust, where they will be managed by the selected trustee, and then given to your beneficiaries when they reach the right age.
Investing for Retirement at Age 60: Conclusion
Whether you have already begun to plan for your retirement years, or are just starting the process, one thing is certain, saving and investing in the right types of assets are two critical components. From analyzing the true value of your assets, to implementing a retirement budget and withdrawal plan, to determining how you can put your money to work for you, there are several aspects that you should consider before you begin your retirement. To discover the investment strategies that are right for your financial needs and retirement goals, you should speak with a trusted financial advisor.