The current turmoil at Wall Street has made us fear the future. American philosophy of ‘Earn Well Live Well’ has been put to test. How much do I need to retire? That’s the question, on every mind. The past year has had the Yo-Yo effect on retirement planning. Yo-Yo stands for ‘You Are on Your Own’.
Retired Gentry
Those who have already retired have been hit the worst. Many of them have been distressed to see their home equity reduce to paltry sums. Their 401Ks have lost more than 50%. Their investments in stocks have lost sheen. So what do they do now?
The first thing to do is to reduce withdrawals from your portfolio. If that is not possible then skip the annual inflation adjustment until the market rebounds. In the first year, limit your withdrawals to only 4% of your portfolio.
5 year immediate annuities are a good option for retired people to generate income. You may put the rest of your nest egg in a deferred annuity at a fixed growth rate. After the surrender period is over, withdrawals from deferred annuities are penalty free.
You can also tap reverse mortgage on your home if you are a homeowner. You could get a lump sum or monthly payouts or a line of credit. You could choose a combination of these. Take advice from your children too.
50 To 60
Those who are neither young nor old enough to retire are the ones in their 50s. You should seek the benefits of the government’s rules which allow catch up contributions. For a total of $22,000.00, you can save an extra $5,500.00 in retirement plan contributions. Also you can postpone the date of retirement. How long you need to postpone would depend on the question - how much do I need to retire?
Do you have enough cash to cover expenses for one full year? If not, make provisions for it. Likewise, keep money equivalent of 2 years’ expenses in the form of certificates of deposit. Buy short term bonds equivalent to another 2 years’ expenses. These can be easily liquidated. Keep 50% of your portfolio invested for growth.
Youth
For those who have a long way to retirement, the situation is bright. Young people need to think long term and continue contributing sincerely. Take a stock of your asset allocation. Invest in quality stocks. Increase contributions as much as you can. Real estate is cheap today, so go ahead and buy a house.
Some can invest in non deductible IRAs and convert them to Roth IRAs in 2010. This is because by then the income eligibility limit for Roth IRA of $100,000.00 would disappear. Likewise don’t lose hope in 401(k) that your employer offers you. Invest in your retirement now or you may not enjoy one later.
Research options like deferred annuities for an income in the future. For investing in the stock market, check your attitude to risk. Visit a good investment adviser. Seek more insight into the market before putting your money in it. Your portfolio should let you sleep peacefully at night.
There are lots of suggestions in this article. Please visit a qualified financial planner before acting on any of them.