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5 tips to prepare for a great retirement

According to a 2013 Gallup poll, more than half of working Americans expect to retire at age 65 or earlier. However, this expectation is in stark contrast to their practical readiness to retire.

The 2013 Retirement Confidence Survey, conducted by the Employee Benefit Research Institute and Matthew Greenwald & Associates, provides the following worrying statistics:

  • In 2013, three out of four Americans had total savings of less than $ 25,000, and an astonishing 28% had less than $ 1,000.
  • Less than half of Americans know how much money they need to retire or how much they need to save to reach that amount.
  • Almost two-thirds of all workers believe they need more than $ 250,000 in savings, and 40 percent think they need at least $ 500,000.
  • Six out of ten workers contribute to retirement through work, but the average is strong in favor of those who earn $ 75,000 or more annually - 94% of those who earn $ 75,000 or more versus 24% of those with incomes below $ 35,000.
  • Only one in four workers is very confident that during retirement they will have enough money to cover basic expenses, not including health insurance, and only 14% think they will have enough money to pay for health care.

Despite the likelihood that many Americans will rely on Social Security and Medicare for the majority of their retirement and health care expenses, a survey shows that 30% of workers will not believe these programs will be viable when they retire. Many economists analyze the existing demographic and savings data project that tomorrow's retirees will have to save more, work longer and get by with less than today's retirees. If this potential fate should discourage you, implement the following tips ASAP to improve your chances of a comfortable retirement.

How to Prepare for Retirement

1. Save early and often

If you don't have a retirement savings account, start today and contribute regularly throughout your years of work. The younger you are when you start, the greater the value of all your savings when you retire.

Consider the differences between colleagues Dave and Bill. Each contributed $ 200 a month, or $ 2,400 a year, to their business plan for 20 years, and each made a 5% monthly rate. The only difference between the two is that Dave invested between 25 and 45 years and never contributed again. Bill waited until he was 45, started investing, and continued until he retired at 65. When they retired the same day at age 65, although Dave's account had been for the same number of years, Dave's balance was $ 225,307 while Bill had $ 83,092. a difference of $ 142,215.

The added value is the result of the power of time. The sooner you start, the longer your money can work for you. If Dave had continued to invest $ 200 a month between age 45 and retirement, his balance would have been close to $ 308,000.

2. Balance your investments

Many people confuse savings and investments, which, while related, are not the same. Savings can be in the form of FDIC-insured savings accounts, certificates of deposit, or US Treasury Bills. In general, they are extremely safe and liquid, and make funds available whenever they are needed.

Investments, on the other hand, are assets that are expected to produce long-term returns year after year. Investments range from stocks and bonds to real estate, art, and gold. Different investments require owners to take different risks. They fluctuate regularly in price depending on investor sentiment, the economic and political environment and the nuances of each individual investment. As a consequence of the limited liquidity and increased volatility of investments compared to savings, the former generally offer a higher return than a savings instrument.

Retirement funds are intended to represent future income and are therefore used to purchase investments. Since it is always advisable to protect yourself against loss of capital, even with higher returns, astute investors reduce risk by diversifying. You have different types of assets - such as common stock in multiple companies rather than common stock in one company - and different types of assets.

Accounting for an investment portfolio requires analysis and selection of securities so that the portfolio as a whole is not materially affected by significant market movements. For example, in a perfectly balanced portfolio, a major upward or downward trend in certain securities would be offset by a similar movement in other securities in the opposite direction. As a consequence, the portfolio value would not change significantly in response to these changes, but would continue to grow gradually.

When you're young and years away from retirement, you can be more aggressive and take higher risks for higher potential returns. However, as you get closer to your retirement income, your portfolio should be tweaked to protect your financier - you should take less risk, even if it means giving up the chance for above-average profit.

3. Maximize every tax break

According to an article in the New York Times, the tax burden of many Americans is lower today than it was in the 1980s. Still, given the combination of federal and state income taxes, sales taxes, FICA, property taxes, fuel taxes, and other fees and taxes too numerous to mention, the Tax Foundation estimates Americans will pay a total tax tax of $ 4.22 trillion in 2013 or 29, 4% of national income. In addition, many political observers anticipate that additional taxes, coupled with significant spending cuts in federal programs, will come into effect as a result of our growing public debt.

Federal tax legislation - a nested conglomerate of new laws, reinterpretations, and changes to old laws, and changing regulatory enforcement - offers hardworking citizens ample opportunities to reduce their tax liability through deductions and credits for retirement. For example, in 2014, up to $ 17,500 (plus an additional $ 5,500 if you are 50 or older) can be deposited into a tax-privileged plan, where it can grow tax-free until the funds are withdrawn. This amount does not include a suitable contribution from your employer.

Depending on your income, up to $ 6,500 ($ 5,500 for those 49 or younger) can be invested in an IRA and deducted from income. There's even a saver tax credit of up to $ 2,000 for those making IRA or 401k contributions, subject to income restrictions.

It is impossible for the average person to build a sizeable retirement provision portfolio while paying annual income taxes, consultancy fees, and brokerage commissions. Even with penalties for early withdrawals from tax-deferred retirement plans, consider tax-deferred plans as the core of your retirement portfolio and fund them as much as possible.

4. Live Lean

We live in an age of instant gratification where marketers and advertisers too often encourage the purchase of unneeded products and services. The combination of sophisticated emotional manipulation and the widespread availability of simple credit has created the largest consumption nation in history and the largest economy in the world, leaving its citizens trapped in thousands of dollars in debt.

In order to create adequate future provision for old age, money today has to be invested, debts paid and at the same time foregoing the joy of money. Therefore, you should consider the following changes:

  • Eliminate certain purchases . Buying a year-old used car instead of the latest model can save thousands of dollars. Not having the latest cell phone or tablet computer when your existing electronics are fully functional has the potential to save you hundreds of dollars. The savings from preparing and consuming more meals at home or bringing lunch to work can be significant over the course of a year.
  • Postpone some expenses . Delaying a home purchase for a year or two, opting for a home with a smaller footprint, and choosing to vacation in an in-state resort rather than a Disney theme park or New York City can be prudent.
  • Find discounts on products and services . In some cultures it is common to negotiate discounts or additional "freebies" - and in the United States this is becoming more and more the case. Remember, the money you save by deferring today's luxuries is money that can meet tomorrow's needs.

Saving money doesn't require you to be cheap or stingy. Rather, it's an attitude nurtured by a real understanding of what your money's worth, and it just requires you to view purchases intelligently, not emotionally.

5. Stay healthy

While Medicare provides near universal health coverage to citizens 65 and over under current rules, it doesn't pay for everything. In addition to home care and non-rehabilitative home care, there are premiums, co-payments and deductibles that are not covered. As the Medicare program's price tag rises, there is a growing political argument to pass more costs on to those who use its services: seniors. Fidelity Benefits Consulting estimates that a hypothetical couple retiring today at the age of 65 with an average life expectancy would need $ 220,000 to pay their retirement medical expenses after completing Medicare treatment. This does not include the cost of long-term care if needed, although an estimated 70% of seniors will need it at some point.

Many of the medical problems older people face are the result of life choices made at a young age. Smoking, excessive alcohol consumption, obesity, and sedentary lifestyle all have negative effects, even if they don't appear until later in life. Maintaining good health throughout your working years is likely to pay off in a better quality of life and lower your health care costs as you get older.

Last word

With the right preparation, there's no reason that retirement can't be the golden years you've always dreamed of. Taking responsibility early and exercising care and common sense about your spending habits, investments, and lifestyle can pay off not only in your later years, but also in the years before them.

Are you ready for retirement?

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