Financial Milestones: Retirement planning. Tips for every stage of life.
Retirement by the numbers. Retirement planning is a journey. And the sooner you start, the easier it is. But whether you re in your 20s or 50s, have a lot of expenses, or don t make much money, there are ways to build up and protect your retirement nest egg that aren t as difficult as you may think. On the following pages you ll find savings tips and suggestions for every age and stage of your retirement journey. We hope you find them helpful. In your 20s START SAVING NOW. At your age, retirement planning is probably the last thing on your mind. And saving is hard to do when you re just starting out. However, with so many saving years ahead of you, you re in the best position to have plenty of money to retire well. SIGN UP FOR YOUR COMPANY S 401(K). A 401(k) lets you automatically deposit a percentage of your paycheck into a retirement savings account that earns interest. Most companies will match what you contribute to your 401(k) up to a certain amount, so savings add up faster. Deposits are made with pre-tax dollars, which lowers your taxable income. NO 401(K)? GO WITH A ROTH IRA. Like a 401(k), you can set up automatic deposits to a Roth IRA from your paycheck. However, the money you deposit is already taxed, which means you won t have to pay taxes on withdrawals. INVEST AGGRESSIVELY. At your age, you shouldn t play it too safe with your investments. That s because you have lots of time to handle the ups and downs of the stock market. Bonds are less risky but have lower returns. Instead, you may want to put more of your investment savings into stocks which tend to earn much higher interest over time. INCREASE YOUR FINANCIAL KNOW-HOW. Financial information can be intimidating, so don t be afraid to ask for help in understanding the basics. Read books. Go online. Talk to people who know more than you do. The more you know, the better your financial decisions will be over the course of your career. AVOID DEBT. If you find you re struggling to live within your means a little financial discipline can go a long way. Above all, you don t want to rely on credit cards. You can rack up a lot of debt in very little time. Instead, take a good look at your spending and see where you can make some changes. 2 3
In your 30s CONTRIBUTE MORE TO YOUR 401(K). As your career develops, make it your goal to deposit as much as you can into to your 401(k). Consider depositing raises and pay increases, if at all possible. If not, increase your contributions gradually. Even if you add just one percent more of your salary, the savings will add up quickly. FIND ADDITIONAL SAVING OPTIONS. In addition to your 401(k), you might want to open a personal IRA. A Roth IRA is a good choice because you save with after-tax dollars and your earnings grow tax-free for as long as you want. IRAs can have income limits and eligibility requirements so be sure to do your homework. MAKE BOLD INVESTMENT CHOICES. In your 30 s you should still be investing aggressively. Just don t put all of your eggs in one basket. Be sure to vary your investments and don t be afraid of taking a few risks. You ll benefit from higher returns and you re still young enough to recoup any losses. WATCH YOUR SHARES OF COMPANY STOCK. Company stock can sometimes make up more than half of an employee s 401(k). This is way too high. Investments in any single company shouldn t make up more than 10 percent of your portfolio. If it does, you may be putting your retirement at risk. BEWARE OF CHANGING JOBS. Moving on to a new job can sometimes derail your retirement savings. Lots of people in their 30s cash out their 401(k)s when they change jobs. If you do, you ll almost always have to pay a 10 percent penalty on top of paying taxes on your withdrawal. And if you re not eligible (vested) to keep everything your employer has contributed to your 401(k), you ll lose that money. So it may be wise to postpone making a move. START YOUR KID S COLLEGE FUND NOW. It s never too early to save for college just be sure not to forfeit your retirement savings. There are no student loans or grants to pay for retirement. So if you want to pay for your children s college, the earlier you start the better. See if your state sponsors a 529 plan for education expenses. It has a lot of tax advantages. PROTECT YOUR FINANCES. Check with your employer to make sure you have disability insurance. This can replace up to 60 percent of lost income if you should become hurt or injured and can t work. If you don t have disability coverage at work, consider buying it on your own. Same goes for life insurance. Most companies provide it, but if you change jobs you lose it. An individual term life insurance policy will give you the most coverage for the least money. 4 5
In your 40s SAVE THE MAXIMUM. If you ve been neglecting your retirement savings, you re going to have to work hard to catch up. And you may have to cut back on spending to do so. If nothing else, make sure you re putting the maximum amount possible into your 401(k). Calculating how much you should be saving each year to reach your retirement goals can be the wake-up call you need delete and move period after need. RETIREMENT VS. PAYING FOR COLLEGE. If you ve been saving little by little for your children s college education, tapping into your retirement savings shouldn t be an issue. However, if college savings are lacking, you may be tempted to dip into your nest egg. Don t do it. There are more ways to pay for college than there are for retirement. School choice, student loans, scholarships and student employment are all options you should explore. INVEST OUTSIDE OF WORK. Your 401(k) is only one option to generate retirement savings. You may also want to save independently in an IRA. A Roth IRA is a great choice because you ll never have to pay taxes on what you earn. For more options and guidance, you can always hire an independent money manager. DIVERSIFY. In your 40s, you re still long enough away from retirement, so you don t have to play it too safe with your investments. However, balance is always a good thing. And you should keep an eye on your asset allocation and diversification. Consider scaling back your stock investments to 80 percent of your portfolio, and put the rest in bonds or other conservative holdings. 6 7
In your 50s CRUNCH THE NUMBERS. You re coming into the home stretch. If you haven t figured out how much income you ll need in retirement, do it now. Your lifestyle, expenses and medical needs should all be taken into consideration. Don t underestimate your needs. Then look at your 401(k) s, IRAs, pension plan, Social Security, personal savings and assets to calculate how much income they ll generate. GET PROFESSIONAL ADVICE. At this stage of the game, it s important to set goals for your retirement. A financial advisor can give you a fresh perspective on your investments and planning. And provide the guidance you need to reach your goals. KEEP SAVING. Now s not the time to slow down on saving. Put as much money as you can into your 401(k)s, IRAs, and other tax-sheltered retirement accounts. And take advantage of any catch-up contribution opportunities. If you re short of your goals, you may have to take on some risk with stock investments in order to increase your returns. WORK IF YOU NEED TO. Depending on your financial situation, you may find that you need to keep working either part time or full time. Most retirement funds make you wait until you re 59 ½ to cash out without paying a penalty, so working may be a necessity. The good news is that many companies are retaining or hiring older, more experienced workers due to a lack of available talent. PAY OFF YOUR MORTGAGE? These days, paying off a mortgage before you retire is becoming less common. Instead of paying off their mortgage, some people prefer to put their money in the stock market to generate returns. However, most people have to work to manage their mortgage payments. In any case, retiring with a large mortgage isn t a good idea. BE PREPARED FOR MEDICAL EXPENSES. Unexpected medical bills and long-term care can wipe out your retirement savings in no time. You may want to consider long-term health insurance which pays for things like assisted living and nursing homes. It s very expensive, however, and payments may be too tough to handle in retirement. A less expensive option is to add supplemental insurance to Medicare, such as prescription drug coverage. 8 9
Find your own way It s never too early or too late to take steps toward saving for retirement. The important thing is to get started and stick with it. And remember that your retirement journey will be unique. Try not to compare yourself to others. Every one has different needs, circumstances and risk tolerance. What works for some people may not work for you. Above all, don t be afraid to ask for help if you need it. A great place to start is a complimentary retirement review with a Financial Consultant at Webster Investments. It could make a big difference in your retirement strategy and success. Schedule a no-obligation retirement review today: IN PERSON At your local banking center ONLINE WebsterBank.com/investments BY PHONE 877.838.1570 10 Securities and Insurance Products: Not FDIC Insured Not Bank Guaranteed May Lose Value Not a Bank Deposit Not Insured by any Federal Government Agency Securities offered through LPL Financial, member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. Webster Bank, N.A. and Webster Investments are not registered broker/dealers and are not affiliated with LPL Financial. 11
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