Sunday, 23rd April 2017

Preparing for Retirement

Posted on 23. Aug, 2012 by in FINANCE

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Taking the right steps to ensure your financial security in the years leading up to retirement

Making a financial plan and all it involves–from saving for a child’s education expenses to planning for retirement–is a highly individualized process. Every person is different and financial plans should reflect that fact. This is certainly true of women, who may need to make different tactical moves than men during their career in order to accomplish financial goals. A good financial plan should focus on four main areas: income, expenses, risk management and investing. Within each of these buckets there are unique considerations and strategies for women who want to be prepared financially for the future.

The Foundation: Income
Even before starting a career, women should consider a degree or major in an area likely to lead to a good paying job so they can become the sole provider for their family if that becomes necessary. For example, women could consider choosing a field in which they are in high demand, such as engineering, business, computer science or math related fields in general.

Throughout their career, women should also focus on developing marketable skills to enhance their career and income, including leadership, public speaking, analytic, and sales skills. Online classes, evening courses, seminars and volunteer jobs are an excellent way to continue learning new things, even while working a demanding job. Additionally, keep an ongoing list of career accomplishments and update your resume yearly with specific achievements. And always talk with recruiters, even if you are not looking for a job.

The child-rearing years are a particularly important time for women and it often affects their income—if not immediately, then over the course of their career. It impacts 14.7 percent of potential working years for the average woman compared to 1.6 percent for the average man (U.S. General Accounting Office, October 2009). Develop strategies in advance to minimize this loss of income.

SAVING IS MORE EASILY SAID THAN DONE, BUT THERE ARE WAYS TO MAKE IT MORE AUTOMATIC.

Saving: Treat It Like an Expense
Saving will be difficult no matter how much you make if spending is out of control, so make sure you factor saving into your budget alongside expenses like groceries and clothes. Always donate at least the percentage your company will match into a 401(k). Put additional money aside for other savings and investments and treat them like fixed expenses, increasing the amounts as your income goes up.

Saving is more easily said than done, but there are ways to make it more automatic. For example, directly deposit parts of your paycheck into a savings account and investment fund so you are not tempted to spend it. If it gets mixed with discretionary funds, it will likely be spent.

Don’t Forget Risk Management
Managing risk is a vital component of a financial plan, and it should start with health insurance. Even if you are selfemployed and insurance is costly, at least consider a policy that covers catastrophic expenses. Eventually your family will need to purchase health insurance in order to be in compliance with the Affordable Care Act (Obamacare) and avoid a hefty penalty /tax. Other ways to manage risk include purchasing long-term care and life insurance. Because women have a longer life expectancy than men, this is especially critical. Health insurance and medicare do not cover long-term care expenses for chronic conditions, including home-based care and assisted living or nursing home facilities. Life insurance is also important and can be purchased for a reasonable monthly premium. The amount needed will vary based on your situation, but it should be enough to replace a spouse’s income or yours in the event of premature death.

Other expenses, such as a child’s college education, should also be considered. Social security may not seem like something that belongs under risk management, but delaying when you begin taking social security payments can reduce the risk of running out of money later in retirement. This is particularly relevant to women since they live longer, on average.

Benefits can be decreased or increased significantly depending on when you start receiving them. If your full retirement benefit is $1,000 at age 66, for example, and you choose to start getting benefits at age 62, your monthly benefit will be reduced to $750 to account for a longer retirement.

This is generally a permanent reduction in your monthly benefit. In contrast, if you delay payments until age 70, the monthly benefit amount increases to $1,320.

Invest Smart (and Pick a Good Financial Advisor)
Achieving the right asset allocation with your investments can be more important than picking the right assets. Your advisor should know your primary financial objectives, including time horizon, risk tolerance, tax bracket and income needs before recommending an investment program. For example, suppose you are willing to take on a moderate amount of risk in order to achieve your retirement goal of producing $100,000 in annual gross income in twenty years. A good financial advisor will blend this information with the firm’s outlook for returns, risks and correlations of asset classes, and then develop a tailored investment plan.

Finding a financial advisor you can trust is important. Ask for recommendations from friends, relatives, bankers, and other advisors. Know their experience level and credentials, such as: Certified Financial Planner®, Chartered Financial Analyst and Chartered Life Underwriter. Also, make sure the advisor has experience working with others in a similar situation, whether you are an early saver, mid-career investor, imminent retiree or looking to focus on estate planning or wealth transfers–or maybe you are about to have a baby and would like to take a year off from work, but want to minimize the impact on your overall investment strategy. Your advisor should understand where you are and where you want to go financially.

Remember, whatever career stage you are in, it is not too early or late to begin planning for a financially secure retirement. Whatever your challenges, find an advisor who is willing to help you with them.