Retirement planning involves two core tasks: estimating how much money will be needed
and identifying where it will come from. Surveys show that most
workers have been unable to do this very accurately, and that they actually spend more
and have less income in retirement than they expected.
For example, only 13 percent of workers
expect Social Security to be their largest source of income in retirement.
In fact, 44 percent of retirees said Social Security is their largest source of income.1
Whether you are approaching retirement or already retired, you may want to consider some of these steps to help reduce any gaps between your expectations and reality.
Take Advantage of Tax Deferral
Pre-Retirees: Federal law allows
people aged 50 and older to make increased contributions to tax-advantaged
vehicles such as IRAs, 403(b), 457 and 401(k) plans.2
Retirees: By taking
withdrawals from taxable accounts in the early years of retirement
and leaving money in tax-deferred plans as long as possible, you
may be able to increase the benefits of tax deferral.
Hone Your Expectations
out of 10 retirees left the workforce earlier than they had planned,
with half citing medical problems or disability as the cause.3
You might want to prepare for the possibility that you could be
forced to retire earlier than planned, or that medical expenses
may be higher than expected.
health-care expenses for seniors rose 50 percent between 1999 and
2001. Further increases are expected as more employers eliminate
retiree health benefits.4
Plan to review your financial situation each year to adjust for
unexpected expenses or any additional income.
Stick to the Plan
and implementing a sound financial program is important, but it’s
only half of the equation. By adhering to predetermined investment
strategies, investors may be better able to weather periods of market
volatility and economic uncertainty.
Retirees: The need
for a solid financial plan does not end when you stop working. Stretching
money out over a long retirement may require increased attention
to investment performance and asset allocation.
Even the most detailed retirement plans can change with circumstances.
By staying flexible and preparing for the unexpected, you may be
able to handle almost any situation that may arise.
1 & 3 2003 Retirement Confidence Survey,
Employee Benefit Research Institute
2 Distributions from tax-deferred plans are taxed as ordinary income
and, if taken prior to reaching age 59½, may be subject to
an additional 10 percent federal income tax penalty.
4 USA Today, April 24, 2002