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Thursday, September 25, 2014

How to save for retirement in later years

Retirement planning tips
Defined contribution plans help supplement Social Security Income in retirement

With capacity and will, planning for retirement in later years should not be impossible. An important thing to realize when planning for retirement in later years is that lack of retirement planning can lead to substantial unwelcome life style adjustments. To minimize these changes in terms of standard of living, a few key principles apply including maximizing safe return on investments, increasing percent of income saved, and eliminating controllable retirement costs.

Yields


A good way to save for retirement in later years is to invest in higher yielding financial instruments that are safe. For example, low-risk time deposits with higher yields can be invested in via international banking services such as the CITI International Personal Bank. Other places to obtain higher return on investment are fixed dividend paying stocks from stable corporations, and credible corporate or government bonds such as Treasury Inflation Protected Securities. 

Contributions 


The Financial Planning Association recommends saving 20 percent of annual income as retirement years approach. This makes sense as later years tend to be higher paying and there is less time until retirement knocks on the door. For late starters, increasing this percentage to save even more, and reach the maximum contribution limit on retirement accounts such as IRAs and 401(k)s helps catch up on missed contributions and increases employer matching when available. 

Tax strategy


Leveraging tax planning to improve retirement planning is also beneficial to later starters. This can be done in a number of ways including tax credits, and retirement plan deductions. For example, by saving or investing via a retirement plan, not only can tax bracket be lowered, but taxable income can also be lowered. Moreover, for low income earners, the Internal Revenue Service allows up to 50 percent credit of retirement contributions into qualified retirement plans. 

Social Security Income


There are a number of ways to maximize social security income before and after retirement. One of those ways to is to work until full retirement age. Another is to continue working after full retirement age is reached. This second method in effect increases retirement income without penalty. Moreover, according to the Social Security Administration, working and continuing to contribute to social security during retirement at a higher income level  increases retirement income even after retiring. 

Real estate


Not having to worry about where you are going to live is a stabilizing factor for any retiree as retirement income can then be used for other things. According to US News,  residential expenses typically account for approximately one third of a working person's income, not having to pay that one third of income after retirement counteracts the drop in income often experienced following retirement. In that sense, paying off a home or downsizing to a smaller one that is paid for can make a big difference to retirement living costs.

Images: American Advisors Group, Retirement calender; CC BY-SA 2.0

1 comment:

  1. Cultivating frugal habits into society is a very important task and it will help to save much money for the retirement. The entire business environment hunts dollars at our pockets but people need to be smart enough to live within the means. For example if I need same day personal loans I have to carefully estimate such necessity against my budget.

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