The "shoulds" of retirementWhen it comes to retirement, the variety of ways to save money can be so confusing that even the most diligent investors might wonder if they are looking at the right information, doing the right thing or if they’re even on the right track. Would you know if you should be using a fancy savings plan? Should you put more in? Less? Should you panic? While we’ll get to the rest of the questions, the answer to the last one is no, you should not panic. There is no retirement plan anywhere that does better when you panic. For anyone confused about retirement, there are lots of sources that explain who, what, how, when and why, but very few places to turn for one of the most important questions – should. This guide is meant as a quick reference to that really tricky word, with some of the most common “should” questions answered. Like any other guide, though, it can’t be as specific as you’d like, so if you have more questions, get in touch with us at (218) 729-7733 or email CCUMembers@centricity.org. Ask us your shoulds or see what shoulds other people are asking. If you’ve got a question, it’s a safe bet you’re not alone. Q: How much money should I have when I retire? A: This is the most common “should” question in America right now, probably because of its importance. The answer that most experts give, “as much as you’ll need” isn’t particularly helpful. A better, although still maddeningly incomplete answer involves some simple math you can do on the back of a napkin: Take your annual income the year before you plan to retire and subtract your annual retirement income (Social Security, pension, trust, etc.) from it. Whatever that difference is, multiply it by the number of years you expect to live after retirement, probably 15-20. That’s how much you need, give or take a bit. For example, if your Social Security and pension pays you around $50,000 per year, and you’re making around $150,000 before you retire, the difference is $100,000. Multiply that by 20, and you’ll probably need around $2 million. If that sounds like a whole lot of money, that’s because it is a whole lot of money. Q: How much should I be saving now? A: Another question that all-too-often results in a frustrating answer. You should save as much as you can, but not more than you can. A better answer is that retirement should be your savings priority, ahead of college funds or other long-term savings, simply because you can’t get a loan to retire, but you can for virtually everything else. If you feel like your monthly contributions are just drops in the bucket, stop focusing on the bucket. Instead, take a look at your monthly picture. Make a pie chart with five big slices: Bills, debt, spending, short-term savings and long-term savings. This isn’t yet the time to go through and figure out how to trim your bills or refocus your spending, just look at those five. How much of your long-term savings is being used for retirement? Could that number be higher? If so, put more into retirement. If you want to find ways to reduce your costs so you can save more money for retirement, look at those categories again and start making cuts from right to left. First, cut some spending from other long-term savings. Then short-term savings, spending, debt and finally bills. Q: When should I start saving? A: If you read the last two questions and have sharp pattern recognition skills, you might expect a frustrating answer, but this one is actually easy. If you haven’t started, start today. Like, right now. Seriously, either click this link or right-click that link, select “Open in a new tab” and look at that page after you finish this article. It only takes a few minutes, and you’ll feel so much better. Remember the motivational cliché: The best day to plant a tree was 20 years ago; the second-best day is today. Q: What kind of retirement account should I get (or get next)? A: There are three major considerations when selecting a retirement account. First, how many years do you have until you retire? The answer to that question should help determine your risk. The second question is how much money do you make? The answer to that question determines whether you’d like to be taxed on the income now or in retirement. Unfortunately, you’ll have to pay taxes on it at least once. Finally, have you maximized the benefits of another account? If you’re past the point of getting your employer to match your 401(k), look at all of your options. If not, put in as much as you can that your employer will match. You’re not going to find a lot of retirement plans that pay more than the 100% rate of return your employer is offering by matching funds, and if you do find one that can consistently outpace your employer’s contributions, it’s probably illegal. Once you have the answers to those questions, check the link above or drop us a line at CCUMembers@centricity.org and we’ll set you up with the best plan we can. Centricity has competitive rates on all savings, especially Individual Retirement Accounts. There are a lot of retirement guides out there, but most of them aren’t very good at those “shoulds” that matter so much in our daily lives. Hopefully, this guide has given you enough information to know what questions to ask. We’d love the opportunity to talk about these shoulds or any others you might have. For now, check out our social media and join in the conversation! Sources: http://www.investopedia.com/university/retirementplans/529plan/ http://www.savingforcollege.com/articles/coverdell-ESA-versus-529-Plan http://money.cnn.com/retirement/guide/basics_basics.moneymag/index7.htm http://money.usnews.com/money/personal-finance/articles/2014/12/19/7-retirement-savings-accounts-you-should-consider
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