Are you planning to get your retirement savings in order in 2014?
Members of the Financial Planning Association of Massachusetts offer their tips for getting your money ready for retirement. Next
Use your employer 401(k) match
Be sure to take full advantage of any employer match for your 401(k) plan, said John P. Napolitano, chairman and CEO of US Wealth Management in Braintree.
Understand how much you need to voluntarily contribute in order to get the full benefit of the employer match. Not contributing enough to maximize the generosity of your employer is like throwing free money out the window. Next
Don’t stop saving
The magic of compound interest doesn’t look too magical in the early days of saving, Napolitano said.
Don’t give up saving, and as the accumulation of money piles up, the growth of your savings will pick up. Next
Don’t let market volatility get in the way
Don’t let market volatility and declines stop you from saving, Napolitano said.
It’s easy to get discouraged when you see your hard earned savings decline in value.
If you are buying investments where valuation declines are possible, understand that up front and enjoy the fact that you are buying your investments at a discount compared to the prior purchase.
If you cannot stomach volatility, save using a vehicle that limits volatility and the potential downside. Next
Pay attention to where you invest savings
Pay close attention to where your savings are invested, Napolitano.
While investing should be considered a longterm tactic, it may be beneficial to periodically review your holdings and ask yourself if a change would be helpful.
Your retirement savings should not be in “set it, and forget it” mode. Next
Wait to collect Social Security
Social Security should be considered longevity insurance, said John F. McAvoy of Waterstone Retirement Services in Canton.
By delaying taking the benefit as long as possible the greater the payout is in the future.
In the case of a married couple, this decision not only impacts the husband (usually the one who has the higher benefit), but the surviving spouse.
Because the surviving spouse will receive the higher benefit for the rest of her life. In any event, wait until “full retirement age,” 66 for most baby boomers, to start taking Social Security benefits. Next
Land your ‘retirement airplane’
Consider retirement planning as if you are the pilot of your retirement airplane, McAvoy said.
About five years out from your expected retirement date you need to start to bringing your retirement airplane into the retirement landing glide path.
Hire a certified financial planner practitioner and review your expected income needs versus your savings, pension, and Social Security benefits.
You should have a realistic idea if you are on track for a safe landing or you need to make adjustments to your flight plan. Next
Consider longterm care insurance
The time to consider longterm insurance is in your 50s, McAvoy said.
The cost of the insurance is reasonable at a younger age.
Don’t change for the sake of change
Don’t change your basic strategy based on what you “think” or “hear” the markets going to do, said Daniel J. Galli of Daniel J. Galli & Associates in Norwell.
Over the short term, markets are rarely predictable. Stay with your basic asset allocation strategy.
The mix you select of stocks, bonds, cash, and other asset classes should be a longterm decision which will affect the volatility of your invested retirement assets.
Jumping between asset classes (moving in or out of the markets) can just as easily cause you to miss sharp upward market movement as save you from the dreaded declines. Next
2.Consider after-tax Roth(k) contributions
If your employer’s 401(k) plan offers a Roth 401(k) feature, give it some thought, said Galli.
Roth(k) contributions are made after tax contributions. However, the gain (growth, dividends, interest) from those contributions grows tax deferred within the plan and can possibly be taken later in retirement totally income tax free.
Those dollars would never have been taxed!
Essentially, for this to be a viable option, your contributions have to enjoy tax deferred gain. That means they will be invested for enough time to generate substantial gain.
Additionally, if your marginal income tax bracket (the highest tax bracket your income is subject to) is fairly modest, consider paying the tax now on the contributions by using the Roth(k) feature so that you can enjoy withdrawing all of the gains later, totally income tax free.
In order for the gains to be tax free, you must have participated in the Roth(k) for at least five years and be withdrawing the untaxed gain due to death, disability, or after age 59½ . Next
3.Look at the in-plan Roth conversion option
If your 401(k) plan allows for in-plan conversions to Roth(k), you may want to consider converting some of your assets within the plan to Roth(k) assets, Galli said.
If the plan allows for it, these conversions will be taxable but will not be subject to the 10 percent penalty for participants under the age of 59½ .
Unlike Roth-IRA accounts, your income doesn’t matter for in-plan conversions.
Later, when you leave the plan, you can roll these Roth(k) assets to a Roth-IRA.
All of this helps build a potential tax-free income stream for retirement.
Conversions must satisfy a five year holding period within the plan.
If your plan allows for after tax contributions, you may possibly convert just the after tax dollars to a Roth(k), avoiding any income tax.
Your plan document may or may not allow this and may or may not require that your convert the taxable earnings also.
Check with your tax advisor and plan document before taking action. Back to the beginning
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