Build It from the Ground Up: A Blueprint for Retirement

A comfortable and worry-free retirement is the goal of many Americans. However, the biggest obstacle in attaining retirement goals is that people may tend to procrastinate and avoid thinking ahead to formulate a plan of action. As a result, many are left scratching their heads, with little time on their side. How will they attain the funds needed to enjoy their retirement years?

Whatever your age, it is never too soon to look ahead and begin giving thought to your retirement. Planning for retirement has become a more difficult task. Therefore, it’s important that you plan well in advance by setting goals and deciding how they will be met.

Invest for a Future Lifestyle

Although pre-retirement and post-retirement investment portfolios should each have both income and accumulation aspects, your pre-retirement portfolio should be more heavily weighted toward accumulation for later use. It is never too early to begin planning for your retirement.

Generally, you will desire to maintain a standard of living consistent with your pre-retirement years. However, you may need about 60-80% of your pre-retirement income to support a comfortable retirement lifestyle.

Proceeds from pension plans and Social Security may account for as little as 35% of the typical retiree’s income. Another 25% may be derived from earned income—either full or part-time employment. In order to retire comfortably, the remaining amount needed would have to come from your personal retirement savings or investments.

Fill the “Void”

The amount needed to fill this income “void” will depend on the amount of Social Security you will receive and what income you will have from other sources such as a company pension plan or your own Individual Retirement Account (IRA). That is why the steps you take today (investing, diversifying, increasing already existing investments, etc.) will be vital to help fill this gap and secure a comfortable retirement.

Steps to Take Now

Contribute the maximum amount to your IRA. The tax law changes give taxpayers more flexibility than ever, but also become more confusing. There are some enhancements to traditional IRAs and the “Roth” IRA provides tax-free growth and flexibility of withdrawals after five years. In addition, if your spouse is not working, you might consider getting a spousal IRA. However, it is essential that you consult with a qualified professional to determine which course of action best suits your needs (especially when comparing the benefits of the “traditional” IRA to the “Roth” IRA).

If you have an employer-sponsored 401(k) or 403(b) plan, you may wish to maximize your contributions there also. The same applies if you are self-employed and enrolled in a Keogh, SEP-IRA, or SIMPLE plan.

Devise and utilize your own individual investment strategy.

Individualize Your Portfolio

Diversification, or spreading your investible assets among a group of different asset classes (stocks, bonds, and cash), is an investment strategy intended to help protect against a severe crisis every few years and avoidance of the old “feast or famine” characteristic of the investment markets.

Diversification is used to create a portfolio by spreading your investible assets among various groups, including mutual funds, variable annuities, fixed-return accounts, and money market funds. Today, the majority of all retirement assets are contributed to tax-deferred retirement plans through employers or through individual retirement accounts.

Diversification does not eliminate risk, does not guarantee a profitable investment return, and does not guarantee against a loss. It is a method used to manage risk. Diversification offers returns that are not directly related over time and is intended for the structure of a whole portfolio to reduce the risk inherent in a particular security.

Periodically Review Your Goals

When you are younger, you may opt for growth-oriented investments. Consider, however, that investment return and principal value of stocks and mutual funds may rise or fall due to market conditions and shares may be redeemed for more or less than their original purchase price. Thus, the degree of comfort you have with market fluctuation should determine your overall investment strategy. As you grow older, you may wish to moderate risk with fixed income investments, particularly if you plan to take distributions soon after retiring. A balanced asset mix should be employed.

A post-retirement portfolio should show a greater allocation of investment resources toward income-producing vehicles, with a portion allocated for accumulation, in order to be able to create a greater income in the future; inflation will erode some of the purchasing power of current income-producing investments.

Irrespective of your age, you can use different investment management techniques as you create your own portfolio and consider the different investment alternatives available to you.

It’s In Your Hands

If you are financially independent at retirement, it can become a time of new opportunities, a time to try a second career, to develop a new lifestyle, or to pursue new dreams and goals. Instead of a period of boredom, worry, and disenchantment, retirement can be your most stimulating, fulfilling time ever—truly your golden years.

When the time finally comes and you’ve done the proper planning, the transition will be smooth and you will feel comfortable and secure about it.

To your successful retirement,

Jason

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