What all this means is that it’s not enough to simply pick different types of investments and hope they make enough money to last through retirement. You’ll need to provide a fair amount of direction. It’s also about having a mindset that is geared toward long-term goals involving health, lifestyle, and balance regarding realistic spending habits.
Here are a few suggestions for how to focus on finish lines, not finish times.
Start planning early
It’s probably the most commonly given sage advice that few of us follow. A recent survey (1) reported that 42 percent of Americans have saved only $10,000 or less for retirement. Only 10 percent said they have between $200,000 and $300,000 saved—a far cry from the million or more suggested by financial planners.
If you’re training for a marathon, you can’t start a week before the event and expect to finish. If you start saving early, you take advantage of the power of compounding returns. This is how you get your money to work hard for you, not the other way around.
If you didn’t start as early as you would have liked, starting now is the next best option to help get your retirement strategy moving in the right direction..
Consider a Roth IRA
Roth IRAs allow you to contribute with after-tax dollars, but distributions during retirement are tax-free. The logic behind this investment account is the expectation that tax rates will go up in the future. Sometimes they do, sometimes they don’t, but the general expectation is that tax rates increase over time.
An added benefit of Roth IRA is that if you take a qualified distribution, you could reduce your taxable income, lower Medicare premiums, and minimize Social Security taxes—all good ways to stretch your dollars.
Be realistic about returns
The rates of return you expect and actually realize may be two different things, which is why you should be realistic about how much income you will earn.
Many factors influence how well your investment accounts perform, including bull and bear market cycles, recessions, and how competently accounts are directed by fund managers. Be prepared to weather periodic storms.
Open a health savings account
A health savings account (HSA) must be arranged along with a high-deductible health insurance policy. These policies, as the name implies, have high deductibles for certain services, but typically lower premiums than other types of health insurance accounts.
Contributions to an HSA are not only tax-deductible, but distributions for qualified medical expenses (2), deductibles, and copayments are tax-free. Another added benefit is that unused funds can be rolled over from year to year. Once you turn 65, you can even use the money for non-medical expenses, but it will be taxable as income.
Prepare for unexpected events
Unexpected events happen to most people. This goes without saying. Do you have a plan to weather times when your investments produce negative returns?
Having a Plan B that protects your assets during changing market conditions will help minimize the financial impact and protect your nest egg.
Focus on debt
High-interest debt is perhaps the biggest drain on your retirement investments other than the financial impact of adverse health events. Ideally, you’ll want to pay down debt starting with the highest interest account, whether it is a credit card, mortgage, or other interest-compounding account.
You may have to get creative to pay down debt by downsizing or taking a part-time job until you have these accounts under control.
Have a variety of investment buckets
Some financial planners recommend having investments in different buckets based to better fit your unique needs. People often focus on risk and growth potential, but understanding what investments might best suit a variety of goals, based on time, is essential. Defining what money you need today for running your life, down the road for plans you may have like moving, and far into the future is important when building any strategy. For example, you may hold savings accounts, IRAs, mutual funds, stocks, and other investment accounts in separate accounts, all with different invested differently based on the goal it is assigned to.
The key to success is to carefully research how all your investment accounts work, what return you need to achieve your goal, and how much money you have to contribute to each account to get there. The idea is to have more conservative buckets to use now and early in retirement and less conservative buckets for the latter part to grow and help offset rising costs you are likely to experience.. If you find it too complicated, you may want to consult with a trusted financial planner.
Adapt when necessary
Adaptation has always been key to human survival, and it’s no less important when it comes to the survival of your retirement savings. You may want to explore different ways to turn some of your savings into income streams. It all depends on your current situation and the goals you want to achieve..
Running a marathon requires endurance, preparation, and strategy; so does managing your retirement investments, if you want to finish strong.