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Sunday, February 9, 2014

The 10 commandments of proactive retirement planning

Opting to receive Social Security income early costs more in the short term
Copyright licenses can generate a passive income stream
Planning for retirement is a little like voting: you should do it early and often. You are better off if you start in your early 20s. But even if you haven't, you can still plan for a good life in your golden years.

No matter where you are in your life and in your retirement planning journey, there are definitely certain "do's" and "don'ts" associated with successfully planning for retirement. Following these rules, or "commandments," will help you to have a better experience planning, a smoother transition into retirement, and a more successful retirement planning experience. Obeying these "retirement planning commandments" will help you to be much better prepared for retirement when that time comes.

To help you out, here are "The 10 commandments of proactive retirement planning"

1. Thou shalt not rely entirely on Social Security

If you are close to retirement, you can reasonably expect to receive payments from Social Security. But if you are decades out, you have no idea what the state of Social Security will be in 2040, 2050 or later. And at any rate, Social Security will almost certainly not be enough. So, make sure that you aren't completely relying on the idea of social security to give you the retirement income you will need.

2. Thou shalt save early

As soon as you can, start saving for retirement. Paying off high-interest debts takes precedence, of course. But if your employer offers matching for 401k or similar programs, you should take advantage of it while you can.

3. Thou shalt not cash in thy 401(k)

If you already have a tidy sum of money in a retirement fund, you may be tempted to cash it in to pay off debts or finance a business venture. But this is a costly decision. Withdrawal(s) from a specific retirement account before age 59.5 count as income on your taxes, and usually come with a 10 percent tax penalty. Fees and penalties aside, you never want to rob from what you will need for your future.

4. Thou shalt ask for help

The state of finance is constantly in flux. What may be a good investment today could be a disaster five years from now. The good news is that help is readily available. Your bank or credit union may offer free retirement planning services, so take advantage of it. If you really want to get the best help and the most sound advice available, it may be worth it to hire a professional retirement planner to help you be the most prepared and decide the best options and plans for you.

5. Thou shalt consider passive income streams

There are two types of income: active and passive. Passive income, such as the interest you collect from savings and investments, is what you want for retirement. Research possible sources of passive income (e.g. royalties or copyright licenses) on top of investments that may allow you to continue to draw an income after you retire.

6. Thou shalt use more than one basket

Some people have been devastated to learn that the company pension funds were mismanaged and all the money is gone. While the company pension is becoming less common these days, it illustrates a serious problem. If you put all of your money in one place, you may be devastated if your investment turns sour. Your best bet is to diversify.

7. Thou shalt monitor thy investments

Too many people make the mistake of putting their money away and forgetting about it. You need to keep an eye on your retirement funds. If you see that one investment or mutual fund is not providing a decent return on your investment, change it.

8. Thou shalt wait until 65

The Social Security Administration gives you big incentives to wait longer before drawing payments from Social Security. You may retire as early as 62, but you will lose 5/9ths of one percent for each month between your retirement and when you turn 65.

9. Thou shalt think about semi-retirement

With life expectancy around 80 and growing, you still have a long way to go. Consider semi-retirement to avoid boredom and living on a fixed income. You could either take on a part-time position in your current field, or start the business of your dreams.

10. Thou shalt not panic


While it is always better to start your retirement planning early, now is better than never. Recognize your error and ask for help in planning for retirement from the present, so that you are not stuck working forever.

Planning for retirement takes a lifetime. If you follow these tips, you will make it that much easier.
Jasmine has spent many years researching and writing about the financial planning and retirement planning industries. In her opinion, smsfperth.com.au offers the best retirement planning resources she could find.

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