Whenever I hear the words RETIREMENT PLANNING my eyes get this glazed over look and my brain escapes to my “happy place” as I start imagining myself on a beach some place. I think this comes from the facts that (1) I don’t know anything about the different retirement options and when people start throwing around words like IRA’s and Annuities, my lack of knowledge on the subject just frustrates me, and (2) I don’t have any extra income to contribute to retirement accounts right now. However, as I learned in part 1 of this financial series (overcoming planning anxiety), I should not let a lack of money or knowledge discourage me from planning. There is always something that can be done today, even if that just means gaining some knowledge on the subject and setting some long term goals.
To gain some knowledge on the different types of retirement planning, I turned to the experts at Genworth Financial. Genworth is a provider of long term care insurance, mortgage insurance, and wealth management services. They are also very committed to financial education and have provided a variety of resources to help promote financial education.
For me, the first step was to realize how much money I would need each month to retire. That part was fairly easy, because I already filled out the budget worksheet during part 2 of this series (how to spring clean my bank account). By using this worksheet I was able to quickly deduct items that I hope to be done with paying for by retirement (student loans, car payments, credit card payments, mortgage costs) and was able to come up with a monthly amount that I need to have available each month of retirement. That was the easy part!
Now onto how to pay for that monthly amount (the not-so-easy part). I took a deep breath, resisted the urge to just give up and start imaging ocean waves, and decided to gain some practical knowledge on the subject. So lets break it down!
SOCIAL SECURITY: Social security is a federal program that all working individuals pay into. At age 66 individuals are able to withdraw these funds based on how much they have payed into the program. According to an article referenced by Genworth “7 Tips for People Planning to Retire in 2013”, it is important to be strategic about when to draw upon social security. You can increase your monthly pay out by waiting a few years to draw upon it.
The article states “You have some folks who, by default because they are going to retire, decide to take Social Security, and that’s not always the smartest decision,” says Robert Oliver, a certified financial planner for Oliver Financial Planning in Ann Arbor, Mich. “You get delayed retirement credits the longer you wait between ages 62 and 70. For most people, it makes sense to wait.”
The article also states that you can now download your personalized social security statement online. This allows you to determine how much you have paid into social security, find out how much per month that equates to, and then project how much more you will have paid in by the time you retire. To me this was very useful information to have, as I always thought that figuring out how much you can plan to have from social security, was a bit of a mystery.
401K’s – A 401k is a tax deferred savings plan, in which money is deducted from an employee’s paycheck before taxes. In some cases an employer may add a portion of what you pay into the plan, adding to your retirement savings. The benefits of this type of savings plan is that it is deducted automatically, it gives you a lower taxable income and you may gain “free money” from your employer. However, the above mentioned article does warn to check with your employer as there may be some restrictions over employer contributions. These restrictions could include the amount of time you must be with the company before they start contributing, or a maximum yearly amount.
ANNUITIES – An annuity is a plan that allows individuals to have a guaranteed set monthly income for the entire length of retirement. This can be accomplished by paying a lump sum amount or by making a monthly payment. These plans are also tax deferred and provide a guaranteed lifetime income. Another great benefit to an annuity is that they can be started fairly close to retirement age (which is a great option for those who may think it is “too late” for them to start saving). There are several different options for types of annuities, which Genworth compares in it’s online brochure “Comparing your annuity options.” This is a great brochure to look at when considering if an annuity is the right choice for your retirement.
IRA’s- An IRA is an individual retirement account. These are basically retirements savings accounts with tax benefits, but that include penalties for taking funds out before retirement. There are many varied plans for these type of accounts that you may wish to talk with a financial planner about. As you think about what type is best for you, you may wish to consider this list of useful topics to consider/ questions to ask, provided by Genworth.
TAKING THE NEXT STEP
If you are anything like me, your head might be buzzing a bit with all that information, and you might be more stressed out then ever, thinking about retirement. There is no need for that! Take another deep breath and look at these a few simple things that you can do to take the next step.
– If you haven’t done so yet, use the Genworth budget worksheet to estimate your monthly retirement expenses based on your budget today.
-Visit the Social Security webpage and use their personalized benefits estimator to figure out an approximate monthly amount you will get from Social Security.
- -Ask your employer if they have a 401k program. Determine if you have room in your monthly budget to put anything into this plan. Even a few dollars per month can add up!
- – Read the Genworth brochure on annuities and set a long term goal of when you would need to begin one if you want to use it to retire (remember, this can even be set up as you are nearing retirement age).
- – Look over the Genworth “Lets talk” topic guideline sheet if deciding to talk to a financial planner.
Happy retirement planning!
Leanne Cox is a guest writer for CleverHousewife.com. She is a stay-at-home mom to two kids, and a credentialed preschool teacher. Leanne teaches “mommy-and-me” and “preschool style” music & movement classes through her business “Little Stars Music & Movement Classes” . She is passionate about encouraging early childhood education through hands on learning and exploration.