How to Have a Sustainable Retirement
Many Americans, today, are faced with uncertainties when it comes to their financial futures. The current economy is exposing those who haven’t saved properly, forced some to retire early, and caused others to delve into nest eggs in order to make ends meet.
The Texas Society of CPAs provides you with a few retirement savings mistakes to avoid.
Not Starting Early Enough
Too many people wait too long to start saving for retirement. Investing even a small amount early on can make a big difference thanks to the power of compounding.
Poor Asset Allocation
Asset allocation is the way in which you divide your money across various classes of investments including stocks, bonds, and cash equivalents. In allocating your investments, you don’t want to be too aggressive – but being too cautious can be just as foolhardy. The goal is to strike the right balance in allocating your retirement dollars on an ongoing basis and to adjust your allocation appropriately as you get closer to retirement.
Underestimating Your Life Expectancy
It’s difficult to predict life expectancy, but when determining how much money will be needed for retirement, many people tend to underestimate how long they might live. To be on the safe side, calculate your financial needs based on the assumption that either you or your spouse will live into your nineties.
Misjudging Your Ability to Continue Working
Working in retirement is a fulfilling way to stay active and generate extra retirement income. But, that presumes that both you and the job market for seniors remain healthy. While some may plan to work well past the normal retirement age, risks such as illness, disability, or job loss may prevent this. For this reason, it’s better to plan as if your working years won’t continue indefinitely.
Not Rolling Over Your Retirement Savings When You Change Jobs
When you change jobs, you can request that your employer make a direct rollover of your account to another qualified employer plan or IRA. By doing so, you will avoid paying income tax or penalty. If you choose to have the distribution made to you, 20 percent of the tax will be withheld; however, it is still possible to make a tax-free rollover within 60 days.
Borrowing Against Your Retirement Fund
When you borrow money from your 401(k) plan that money is no longer working for you. In addition, you are required to pay back the amount you borrowed, generally within five years or the loan will be considered a premature distribution, subject to penalties.
Focusing On Your Nest Egg Too Much
It’s important to check from time to time to see that your assets remain appropriate for your retirement goals – but don’t get carried away worrying about month-to-month fluctuations within your portfolio. For the most part, these movements are a natural part of economic cycles. And while tending your nest egg is critical, it’s also important to give thought to how you’re going to spend your time in retirement. Doing so will make the transition into retirement much smoother.
To learn more about how to achieve personal financial independence, visit Texas Society of CPAs’ web site atwww.ValueYourMoney.org. There you will find free personal finance information divided into 11 life stage categories.
TSCPA (http://www.tscpa.org) is a nonprofit, voluntary, professional organization representing Texas CPAs. The society has 20 local chapters statewide and has 29,000 members, one of the largest in-state memberships of any state CPA society in the United States. TSCPA is committed to serving the public interest with programs that advance the highest standards of ethics and practice within the CPA profession.