|10 tips to a prosperous retirement
|By Mark Terry
Keep in mind these two hard-and-true facts when planning
for your retirement:
1. You want to have enough money to enjoy a comfortable
2. You don't want to run out of money.
But how can you guarantee both? Morningstar and T.
Rowe Price recently presented a webinar
that addresses retirement planning. (Registration is required, but
the session is free.)
Below are some tips from the webcast offered by Christine
Fahlund, certified financial planner at T. Rowe Price.
1. Try to save approximately 15 percent of your salary
each year toward retirement.
This is a rough estimate suggested by Fahlund and
should include money your employer might match toward your contributions,
plus money you invest or contribute to IRAs or other investments.
She says that this 15-percent savings rate will result in assets
that will produce about 50 percent of your current salary.
2. When calculating
your potential retirement income, take into account your investments, Social Security,
pensions, part-time employment and possible income sources such as rental property.
If you're lagging behind where you think you should be, try to increase your annual
contributions above 15 percent and consider putting annual raises, bonuses, cash
gifts or inheritance money into retirement investments rather than spending these
4. You can avoid or defer taxes by contributing
to IRAs or investing in tax-deferred annuities. Talk to a financial planner for
5. If you're not completely happy with the size
of your retirement nest egg when you approach age 65, consider delaying retirement
for a few years.
6. If you work for an employer offering a
retirement plan such as a 401(k), 403(b), 457, SEP-IRA or ESOP, maximize your
employer's matching funds.
7. If you change jobs, do not cash out of your retirement
Roll the proceeds over into the new company's retirement
plan or into a rollover IRA. If you're approaching age 55 and wish
to retire early and begin taking withdrawals, then leave it where
it is. You can tap a company retirement plan at that age, but would
have to wait until age 59 ½ to withdraw penalty-free from
8. Diversify your portfolio among
many asset classes. This helps you maximize your return on investment while decreasing
9. This is tricky, but try to determine what percentage
of your current income you want to live on.
Although 70 percent is sometimes given as a rule of
thumb, there is no set amount, and it will vary from individual
to individual. Keep in mind that you may be able to decrease certain
expenses such as mortgage payments and car payments, but medical
bills (or even better, travel expenses) may be higher. It's worthwhile
to keep in mind that if you retire at the age of 65, you should
plan -- or at least hope -- to live another 30 years.
10. Finally, when you do retire, plan on withdrawing
only about 4 percent of your savings during the first year.
Then give yourself a cost-of-living raise each year
by increasing the amount withdrawn in the first year by 3 percent.
This low withdrawal rate will increase the probability that your
assets will last for 30 years.
For more tips on retirement, see the main story, "Fine-tuning
your retirement goals."