I recently
attended a Retirement 101 webinar sponsored by the New York Public Library
called Retirement Planning 101: Strategies to Maximize Your Life in
Retirement. The webinar included content about retirement planning,
investments, building wealth, retirement income streams (e.g., Social Security,
pension, investment withdrawals), health care costs, and long-term care.
Below are eight of
my key take-aways:
Meanings of
Retirement-
Everyone has their own personal definition but some common themes related to a
“good retirement” are financial freedom (not relying on employment income),
lifestyle choices (freedom to do what you want), security and independence
(adequate resources to handle life events), and legacy (opportunity to leave
behind support for heirs and charities).
Benefits of Early
Saving-
Compound interest and time are your greatest allies. Starting even a small
retirement account in your 20s or 30s dramatically increases your savings nest
egg and reduces the amount needed to
save in later life. An investment of $250 per month earning a 7% annual return
starting at ages 25 and 35 would be worth $656,000 and $304,000, respectively.
Overcoming
Barriers-
Some people say, “I don’t earn enough to save.” The solution is to start small.
Even modest savings can grow significantly over time. Other people say, “I have
to pay off debt first.” The solution is to balance debt repayment with
retirement savings, especially if an employer matches retirement plan
contributions.
Investment
Vehicles-
There are several places where people can save for retirement including
employer-sponsored plans (e.g., 401(k), 403(b), TSP), individual retirement
accounts (IRAs), and personal investment (i.e., brokerage) accounts. Advantages
include potential employer matches (employer accounts), tax benefits, and
long-term growth.
Reinvested
Investment Earnings-
When you reinvest dividends and capital gains earned on investments (e.g.,
stock mutual funds), you generate returns on those returns via compounding.
Over time, compounding can significantly boost the overall return on an
investor’s portfolio.
Retirement Income
Sources-
Defined benefit plans (pensions), which are less common than decades ago, pay a
specific monthly benefit for life determined by a formula based on salary and
years of service. Defined contribution plans (e.g., 401(k)s) allow workers to
voluntarily contribute a set percentage of income to a personal retirement
savings account that must be managed when they retire. Some workers convert
their accumulated balance into an annuity at retirement.
Investment
Withdrawal Methods-
Common methods to withdraw retirement savings to avoid running out of money
include the 4% Rule, a bucket strategy (assets segmented into “buckets”
(groups) for short-term, mid-term, and long-term goals), and using required
minimum distributions (RMDs) as a withdrawal strategy after age 73 or 75
(depending on year of birth).
Long-Term Care
(LTC) Planning-
LTC is the need for help with activities of daily living (e.g., eating,
bathing, and dressing). Costs vary by state and level of care (e.g., assisted
living, nursing home). Options to cover LTC expenses include LTC insurance,
hybrid LTC insurance (life insurance with a LTC rider), self-funding, and
Medicaid, if applicable.
This post provides
general personal finance or consumer decision-making information and does not
address all the variables that apply to an individual’s unique situation. It does
not endorse specific products or services and should not be construed as legal
or financial advice. If professional assistance is required, the services of a
competent professional should be sought.
