Many factors can change based on the definition of retirement. Some people want to work part time. Did you know that 37% of retirees are working in some regard? Some people enjoy spending their time volunteering in retirement. Others would like to stop working completely and travel all the time. Many people identify themselves with their work, especially in America. Values and identity may impact retirement more than originally thought. We would define retirement as a point in somebody’s life where they aren’t required to earn a paycheck anymore.
What factors should be considered before retirement?
There are many factors to consider before retirement and should not be simplified to a mere number goal. Assets, such as pensions, IRAs, rental income, and social security, are important factors when determining retirement. Adding up your assets is a good first step to determine your current situation of retirement funds. There’s no way to track progress unless there’s a starting point. Next, it’s wise to consider current monthly expenses and how they will be different in retirement. Certain expenses, such as debt, mortgage, children’s expenses, savings contributions, etc., will change in retirement as well. Typically, a retiree will need 65-80% of current monthly expenses for retirement income. The length of time until retirement and after you retire is important to consider. As the saying goes, the best time to start planning for retirement is 20 years ago and the second best time is today. Your time horizon leading to retirement is important, but many people forget about how long their money needs to last. Interest rates and inflation are two percentages to consider when determining future retirement assets and expenses. A 10% interest rate is great but how will inflation affect your return? How much will groceries cost in 20 years? How much did a stamp cost 20 years ago?
Should you use an IRA or 401(k)?
The location of savings can be an important consideration for tax purposes. Many people have an option to save for retirement through an employer sponsored plan. This would be considered a 401(k), 403(b) or 457 just to name a few. These strategies would be considered pre-tax savings. They are pre-tax because the employee has never held that money in their possession. Those funds are directed to a retirement vehicle without being taxed. Individuals have the opportunity to take the responsibility to save for their own retirement in an Individual Retirement Account or IRA. There are two main types of IRAs, Traditional and Roth. A Traditional IRA acts much like a 401(k) in regards to the pre-tax label. But, a Traditional IRA has much more flexibility to investment choices and different contribution limits. A Roth is the other main type of IRA. The Roth is different from any other retirement vehicle. The assets inside a Roth IRA are after-tax. This means that money contributed to this account grows tax free and can be withdrawn tax free during retirement. There’s no such thing as the best retirement vehicle but there is an appropriate and inappropriate vehicle for every investor. As a note, be careful to not neglect the emergency fund while planning retirement contributions into these specific vehicles.
How can we help you retire?
There are many factors associated with retirement planning and this just scratches the surface. We have a retirement tool that will analyze different factors such as income, assets, retirement age, current savings, inflation and other items to provide a retirement probability. We can help investors view the probability of their retirement success and make adjustments where necessary. We know that the market won’t always perform as desired so we can put it through stress tests of market downturns and recessions.
Retirement can require the analysis of many different factors and we can make sure nothing slips through the cracks on your retirement plan.
Disclaimer: The material in this presentation is based on information from a variety of sources we consider reliable, but we do not represent that the information is accurate or complete. The material provided herein is for informational purposes only. Opinions expressed are current opinions as of the date appearing in this material only and are subject to possible change. Box Financial’s risk management process includes an effort to monitor and manage risk, but should not be confused with and does not imply low risk or the ability to control risk. This material is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and makes no implied or express recommendations concerning the manner in which any client account should be handled, as appropriate strategies depend upon each client’s specific circumstances and investment objectives.