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Ten Tips For Achieving Financial Security

6/01/2007

When it's time for you to retire, will you be able to afford it? Almost all the research conducted on the subject over the last few years shows that most individuals are unable to demonstrate financial readiness for their retirement years. This only serves to underline the fact that saving for retirement is a challenging process that requires careful planning and follow-through. Here we review some helpful tips that should help you on your way to a comfortable
retirement.

1. Start as Soon as You CanIt's obvious that it is better to start saving at an early age, but it is never too late to start - even if you are already close to your retirement years - because every penny saved helps to cover your expenses. (To learn more, see Delay In Saving Raises Payments Later On and Why is retirement easier to afford if you start early?)If you save $200 every month for 40 years at a rate of 5% interest, you will have saved significantly more than an individual who saves at the same rate for 10 years. However, the amount saved over the shorter period can go a long way in helping to cover expenses during retirement. Also, keep in mind that other areas of financial planning, such as asset allocation, will become increasingly important as you get closer to retirement. This is because your risk tolerance generally decreases as the number of years in which you can recuperate any losses goes down. (For further reading, see Five Things To Know About Asset Allocation, Asset Allocation Strategies and Achieving Optimal Asset Allocation.)

2. Treat Your Savings as an ExpenseSaving on a regular basis can be a challenge, especially when you consider the many regular expenses we all face, not to mention the enticing consumer goods that tempt us to spend our disposable cash. You can guard amounts you want to add to your nest egg from this temptation by treating your retirement savings as a recurring expense, similar to paying rent, mortgage or a car note. This is even easier if the amount is debited from your paycheck by your employer. (Note: If the amount is deducted from your paycheck on a pre-tax basis, it helps to reduce the amount of income taxes owed on your salary). Alternatively (or in addition), you may have your salary direct-deposited to a checking/savings account and have the designated savings amount scheduled for automatic debit, to be credited to a retirement savings account on the same day the salary is credited. (For further insight, see Fundamentals Of A Successful Savings Program.)

3. Save as Much as You Can in a Tax-Deferred AccountContributing amounts earmarked for your retirement to a tax-deferred retirement account deters you from spending those amounts on impulse, because you are likely to face tax consequences and penalties. For instance, any amount distributed from a retirement account may be subject to income taxes the year in which the distribution occurs, and if you are under age 59.5 when the distribution occurs, the amount could be subject to a 10% early-distribution penalty (excise tax). If you have enough income, consider whether you can increase the amount you save in tax-deferred accounts. For instance, in addition to saving in an employer-sponsored retirement plan, think about whether you can also afford to contribute to an IRA, and whether the IRA should be a Roth IRA or a Traditional IRA. (To learn more, see Roth Or Traditional IRA...Which Is The Better Choice?, Making Salary Deferral Contributions - Part 1 and Part 2.)

4. Diversify Your PortfolioThe old adage that tells us that we shouldn't put all of our eggs in one basket holds true for retirement assets. Putting all your savings into one form of investment increases the risk of losing all your investments, and it may limit your return on investment (ROI). (See Solutions For Concentrated Positions.) As such, asset allocation is a key part of managing your retirement assets. Proper asset allocation considers factors such as the following:
· Your age - this is usually reflected in the aggressiveness of your portfolio, which will likely take more risks when you're younger, and less the closer you get to retirement age
· Your risk tolerance - this helps to ensure that, should any losses occur, they occur at a time when the losses can still be recuperated Whether you need to have your assets grow or produce income.

5. Consider All Your Potential Expenses in Your Financial Plan When planning for retirement, some of us make the mistake of not considering expenses for medical costs, dental costs, long-term care and income taxes. When deciding how much you need to save for retirement, make a list of all the expenses you may incur during your retirement years. This will help you to make realistic projections and plan accordingly. (To learn more, check out Determining Your Post-Work Income and Time To Rethink Your Post-Work
Needs.)

6. BudgetSaving a lot of money is great, but the benefits are eroded or even nullified if it means you have to use high-interest loans to pay your living expenses. Therefore, preparing and working within a budget is essential. Your retirement savings should be counted among your budgeted recurring expenses in order to ensure that your disposable income is calculated accurately. (For more insight, see The Beauty Of Budgeting.)

7. Periodically Reassess Your PortfolioAs you get closer to retirement and your financial needs, expenses and risk tolerance change, strategic asset allocation must be performed on your portfolio to allow for any necessary adjustments. This will help you ensure that your retirement planning is on target.

8. Reassess Your Expenses and Make Changes Where PossibleIf your lifestyle, income and/or fiscal responsibilities have changed, it may be a good idea to reassess your financial profile and make adjustments where possible, so as to change the amounts you add to your retirement nest egg. For instance, you may
have finished paying off your mortgage or the loan for your car, or the number of individuals for which you are financially responsible may have changed. A reassessment of your income, expenses and financial obligations will help to determine if you need to increase or decrease the amount you save on a regular
basis.

9. Consider Your SpouseIf you are married, consider whether your spouse is also saving and whether certain

expenses can be shared during your retirement years. If your spouse hasn't been saving, you need to determine whether your retirement savings can cover not only your expenses, but those of your spouse as well. (For further reading, see The Benefits Of Having A Spouse.)

10. Work with an Experienced Financial PlannerUnless you are experienced in the field of financial planning and portfolio management, engaging the services of an experienced and qualified financial planner will be necessary. Choosing the one who is right for you will be one of the most important decisions you make.
(To learn more, see Shopping For A Financial Advisor.)

ConclusionWhat we've discussed here are just a few of the factors that may affect the success of your retirement plan and determine whether you enjoy a financially secure retirement. Your financial planner will help you to determine whether you should consider other factors. As we said before, starting early will definitely make the task ahead easier, but it is not too late to adopt some of these practices, even if you are already retired.

posted by Someone with care and love to All... @ 5:27 AM

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