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10 tips to a prosperous retirement

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 lifestyle, and
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.

3. 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 windfalls.

4. You can avoid or defer taxes by contributing to IRAs or investing in tax-deferred annuities. Talk to a financial planner for assistance.

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 plan.

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 an IRA.

8. Diversify your portfolio among many asset classes. This helps you maximize your return on investment while decreasing volatility.

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."'s corrections policy
-- Posted: Dec. 5, 2005
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