Retirement Planning Tips for People who are not Financially Ready

Retirement planning is a complex process, and taking the help of a retirement planning service is the best thing that one should do. It is a common phenomenon to see people ready for retirement but not financially. When they are close to retirement, they realize the quantum of savings that they made over the years is not really sufficient. It is painful to realize that  it is too late and you cannot go back and correct your mistakes. 

An individual should be saving enough so that he or she is at least able to replace between 60 percent and 80 percent of pre-retirement annual income. This would help you maintain your lifestyle in retirement. You don’t need to get all the 80 percent of your pre-retirement income from the retirement plan because some of that will come from other sources like Social Security.

The most common and widely adopted retirement plans are the traditional IRA and Roth IRA. Traditional IRAs allow you to make tax deferred contributions, while a Roth IRA allows tax free withdrawals.

If you are about to retire and have not saved enough, what are the options

Delay retirement – The most obvious way to deal with such a situation is to delay retirement by a few years. This would allow you to continue to contribute to your retirement savings. Also, during these additional working years try to increase the size of your annual contributions as much as you can. 

This strategy to delay retirement would have significant impact on your retirement savings. The savings get additional years to get compounded, besides it would also cut down on the span of time you would need to draw from the retirement savings.

Plan the timing of social security benefits – If you plan to continue working when you are eligible to retire, your employment could have a bearing on the benefits you receive from the Social Security Administration. The impact would depend on your full retirement age. In case you have not reached your full retirement age, (between ages 65 and 67, as determined by the Social Security Administration) and you earn over a certain amount while collecting Social Security benefits, then those benefits may be reduced. However, if you wait to take Social Security benefits until you reach your full retirement age, then you will have the option of working while collecting full benefits without any reductions.

Work Part-time – Consult with your current employer that if you can extend your job beyond retirement. This is quite possible as companies would genuinely be interested in retaining the expertise of long time workers

Employ a Tax-Smart Withdrawal Strategy – To ensure that your retirement savings last as long as possible, plan your withdrawal strategy. The general principle is to allow tax-deferred investments grow as long as possible. Plan to withdraw from taxable accounts (mutual funds and stocks) first, while tap into your tax deferred savings in Traditional or Rollover IRA later.

It is best to withdraw the assets in Roth IRA in the last, especially if you intend to pass assets along to heirs. The distribution from a Roth IRA is tax free and also a Roth IRA offers some significant estate planning benefits.

Consider a reverse mortgage – If you are woefully short of required retirement savings that you should have created, consider a reverse mortgage. A reverse mortgage though is an expensive tool it allows you to encash the equity in your house. The mortgage fees erode the value of the equity you have built up in your home and further reduce the cash payout that you can anticipate to receive in a depressed housing market like now.

Investing in a Roth IRA plan is one of the best ways to plan for retirement. Delaying retirement or using a reverse mortgage to fund retirement are ways that are riskier and less dependable. It is always good to use professional retirement plan services and ensure that your have sufficient retirement savings when you retire.