Money Matters: Top 4 Steps To Retirement Savings

Pete D’Arruda (Coach Pete),  president of Capital Financial Advisory Group, writes the Money Matters column on CaryCitizen. Photo by nats.

Cary, NC – For many in the workforce, pensions may be a fading trend. But that doesn’t mean you can’t have a happy life after work. Here are my Top 4 Steps to Saving for Retirement.

Pensions Are Going Away

Until now, the majority of American workers have not had the sole responsibility of saving for their own retirements. Past generations comfortably relied on company pensions, Social Security and individual savings for retirement. But pensions are going the way of the dodo bird, and research is suggesting Social Security funds will dry up by 2033, if not sooner.

The only option left for individuals to rely on, is their own personal savings, leaving the task of funding retirement entirely on their own shoulders.

Because saving for retirement is now your responsibility, and not a simple undertaking, here are some tips to help you with the process:

1. Save Early, Save Often

One of the most proactive things you can do now is make a steadfast commitment to diligently save for retirement. If your company offers a 401(k), take advantage of it – especially if your company matches. A company match is free money that can go a long way, with compounded interest, toward ensuring a comfortable retirement. For those without a 401(k), look into other retirement-focused accounts such as a Roth IRA.

Roth IRA

The Roth IRA allows you to set aside after-tax income up to a specified amount each year. Since the money is taxed on the way in, you don’t have to worry about Uncle Sam getting his hands on it again. It’s a desirable choice considering the general consensus sees tax rates going up in the future.

2. Form a Network

Assemble a team of specialists that can evaluate and offer guidance on the different elements of your plan: tax and estate planning, investment management, income planning, and so forth. Each one of these professional services requires a specialized set of skills. Consider that you wouldn’t go to a car mechanic for a heart problem likewise wouldn’t go to a cardiologist to have your tires realigned.

In the financial world there will be overlap and therefore, your network of professionals should be willing to work together to create the most effective and successful retirement plan.

3. Create a Lifetime Income Strategy

After assembling your team, speak specifically with your retirement income planner about developing a strategy that will offer you steady streams of income through different stages of retirement. With pension plans becoming less and less a part of the retirement picture, you’ll need to find regular income from other sources.

One option your income planner might suggest is purchasing fixed index annuities with guaranteed lifetime income benefit riders. These accounts build by a guaranteed interest rate, with the best ones offering compounded interest. The fixed index annuity offers a pension-like alternative.

4.  Plan for the Unexpected

Retirement is no different from your working life in that unexpected expenses are bound to occur. With that in mind, it’s important to make sure your nest egg can withstand a few surprises. Better to be safe than broke, I always say.

The expenses can range from simple home and car repairs to excessive medical related fees. As medical expenses continue to skyrocket, especially in the area of long-term care, you need to build some protection from those costs into your plan.

Today there are a number of financial vehicles with long-term care insurance options that eliminate the ‘use it or lose it’ issue often present with traditional long-term care policies. Explore these options with your financial advisor to protect yourself and your heirs from the excessive costs that would accompany a potential extended care stay.

In the end retirement should be about enjoying the rest of your life. You don’t want one large unexpected expense to creep up on you and ruin it.

 A Significant Transition

As a nation we are going through a significant transition from company-funded to self-funded retirements. Short of winning the lottery, you are responsible for accumulating a healthy nest egg to live on. In order to successfully save for and then enjoy retirement, the sooner you begin the process and the more diligently you save the better off you will be.

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Pete D’Arruda hosts the radio program Financial Safari and is the  president of Capital Financial Advisory, LLC in Cary, North Carolina. In our area, Pete can be heard on WPTF 680am on the radio Saturday mornings from 7am-8am. He also appears Tuesday mornings on NBC-17 between 6am-7am.