According to Wikipedia, Baby Boomers are those who are born between 1946-1964 – meaning they range in age from 46-64 years of age.
Retirement is certainly on their minds and they are concerned about how much they need for retirement savings.
As baby boomers approach the magical age, there are some pretty important things to keep in mind about saving for retirement.
Retirement Savings Is Up to You!
Ok, so this is no breakthrough – I’m not pretending to discover a cure for cancer by any means, but this point needs to be stressed over and over again.
Years ago, you could work for an employer for 30 or 40 years, retire with a nice pension provided by the company and collect your social security and be pretty comfortable in retirement.
Not anymore! Companies are dumping their pensions left and right, Social Security will need a massive overhaul to avoid going defunct – so what does that mean for you?
You are on your own for retirement savings – and that’s OK.
When Can You Access Your Retirement Savings?
This is something that all baby boomers should get really familiar with. Accessing your retirement savings is generally what’s going to provide you an income in retirement, unless you have other business income etc.
Most people recognize 59 1/2 as the magical age to access your retirement savings, but get familiar with the rules surrounding your withdrawals. Here’s a couple of them to remember:
- You can access your IRA at any time, but be aware of the penalties.
- You can withdraw from your 401k savings prior to 59 1/2 without penalty if you are at least age 55 when you retire.
- You can take out Roth IRA contributions at any point in time, but the earnings must left alone until age 59 1/2.
What is Your Retirement Savings Number?
A few years back, Lee Eisenberg wrote a book called The Number, where he talks about what you’ll need for the rest of your life and what it will cost. It’s an entertaining and informative look at what the rest of your life will look like.
You should be asking questions like, “Is a million dollars the magical number?” Many people think they need much, much more than that, but is that right?
In light of this, you’ll need a good retirement calculator and you’ll want to sit down with your loved one and figure out your income versus expenses and determine how much retirement savings you need?
How Will You Diversify Your Retirement Income?
This is one that boomers probably have in the back of their minds, but some careful consideration should be done.
Will you have a pension, social security, 401k savings, IRA money, or annuities to help supplement your retirement income?
What about starting a business or turning a hobby into an opportunity to make some side money? Have you considered other ways to make money and diversify your income in retirement? You probably should.
Once again, retirement savings is up to you, therefore you need to be prepared and should have multiple lines in the water so that you’re not relying on the fish always biting from one particular source.
How Will You Diversify Your Retirement Savings From a Tax Standpoint?
Tax diversification is extremely important and is something that everyone should get familiar with and take a look at for their own situation.
In essence, tax diversification takes a look at the tax status of investing into three different vehicles. You have tax-deferred, taxed-as-you-go (or non-qualified) and tax-free.
No one investment vehicle is right in every circumstance, but I think it’s very important to spread savings out among these three types of accounts because the greater the flexibility you have for accessing retirement savings, the greater the options you have for lowering your tax burden in retirement. Plus, after reading why tax-deferral may not be all that it’s cracked up to be you might agree with me.
If taxes are high in some years, you have other money to withdraw from besides your 401k. If tax rates are low, then why not pull money out of your IRA and consider a Roth conversion etc.
How About You?
Readers, what are some other things to consider for retirement?