by Kathy Armstrong
Are you saving enough for retirement? You know, “the golden years”, the time when you kick back, relax and enjoy a life of leisure? It’s possible that a very large percentage of people who answer that question with a nod may be mistaken.
Ouch! While whether or not you are saving enough depends partly upon the lifestyle you expect to have at retirement age, there are some general rules you should be following to help ensure you can focus on your newfound hobbies – and not whether or not you can afford to replace your aging Buick.
The general rule of thumb has been to save 10 percent of your income for retirement, but for women, that percentage needs to be bumped up to
12 percent. (Attribute it to our longer life span!)
But it’s not enough simply to tuck away your 12 percent into a savings account, and then expect to retire comfortably. All savings methods were not created equal, and investing wisely is the key to retiring comfortably.
First, the smartest thing you can do is to invest as much as you can of your pre-tax income before Uncle Sam and the state get their share. For example, if you pay 28 percent of every dollar you earn to federal taxes, and another 7 percent for state taxes, 35 percent of your earnings are gone before you have touched it.
But there is a way to pay yourself first. Tax-deferred retirement plans.
The three workhorses of tax-deferred retirement plans are the 401(k), the SEP IRA, and Individual Retirement Accounts (IRAs).
I will stress, however, that retirement plans and options are complicated, and require much more space than provided in this single column to explain. Whichever plan you use, though, make certain that you allocate your dollars wisely. The biggest mistake people make where retirement plans are concerned is placing money into their accounts, but failing to move it into the right mix of stocks and bonds. By default, undesignated monies might go directly into a money market account which currently pays less than 1% in interest.
How you allocate your funds when you are 30 should differ from when you are 50. A financial advisor can help you in selecting a proper mix of stocks and bonds.
Just remember, if you ever question whether or not you are saving enough, save a little extra for good measure! And recall the adage “better safe than sorry”.
Kathy Armstrong is a CERTIFIED FINANCIAL PLANNERTM professional and works with Heritage Financial Consultants in Hunt Valley. She is an investment advisor representative through Lincoln Financial Advisors Corp, a broker/dealer (member SIPC) and registered investment advisor, 307 International Circle, Suite 390, Hunt Valley, MD 21030, 410-771-5655. Neither Heritage Financial Consultants nor Lincoln Financial Advisors is affiliated with Howard Bank. Heritage Financial Consultants, LLC is not an affiliate of Lincoln Financial Advisors Corp. CRN-1264151-080315