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.

Let’s take a look at five things to keep in mind about retirement savings:

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?

Perhaps you’re sitting there scratching your head, wondering what happened to your plans! 

Whatever grand allusions you had for retirement – whether it was spending more time with family, more time volunteering or simply more time seeing the wonders of the world  - maybe you find yourself thinking “I may never be able to retire.”

Here are five reasons why you’re off track for your retirement goal and what to do about it.

Market Tank

The 2008-09 recession wiped out many a 401k  and along with that many retirement dreams were dashed!  We’ve had a great recovery so far and many people have gotten back some of their losses.

However, not everyone has the luxury of waiting around for the market to recover fully.

What to do:

Consider postponing retirement and/or reducing your lifestyle.  You may need to cut back the dreams of traveling every three months or getting that second home in Florida. 

Also, re-evaluate your risk tolerance and time frame and consider making some changes to your portfolios.  If you find you have a longer time frame, you may be able to afford a bit more risk to make up some losses.

You Lack Specific Retirement Goals

Is retirement just a grand dream that has no plan of action around it?  You know the old cheesy saying:

Aim for nothing and you’ll hit it every time

There’s some truth to that.  Those who have a plan, review it regularly – making changes as needed – are more likely to reach their goals!

What to do

Take some time and write down what it is you’d like to accomplish.  If you’re married, I highly suggest getting on the same page with your spouse. 

Write down things like:

• When you’d like to retire
• What you’d like to do in retirement (i.e. – travel, volunteer, golf, short-term missions)
• How much money you’ll need for retirement
• How much you currently have saved

Compare where you’re at with where you’d like to be at retirement and consider a course of action to help get you there.

You Make Emotional Decisions

“Markets are down – SELL!”,  “Markets are up – BUY!”, “I want a new 50″ TV – BUY IT”

Are you like a yo-yo when it comes to financial decisions.  This is a sure way to get off track for your retirement goals!  Emotional investing and decision making doesn’t work and will lead to some pretty bad choices.

What to do

If you change direction like the wind consider developing a plan you are comfortable with in good times and in bad.  Consider your risks, your goals and your temperment and get a plan and stick to it only making tweaks as needed.

You Don’t Know When to Sell

This can relate to emotions, but on a broader scale it’s fairly easy to know when to buy an investment.  Most people can identify a deal.  Last March when stocks were half off, there were a lot of deals to be had.

The tougher part is knowing when to sell.   Since March, markets are up some 60% – knowing when to sell is hard.  Why? Because we all want to think a rising investment will continue and we don’t want to sell early and have the stock take off

We’d rather hang on too long than give up some growth even though we might be up some 30%!  Perhaps it speaks to our greed.

What to do

Rebalance your accounts regularly.  Rebalancing simply means getting back to your original asset allocation model by selling investments that are high and buying investments that are low. 

In other words if you start with a 50% stock; 50% bond portfolio and through market growth you are at 60% stock; 40% bonds – sell 10% of your stocks and reinvest into bonds.

There’s a lot of debate at how often you should do this, but I suggest at least annually and if you’re able to perhaps check the percentages quarterly to see how far from your originals you are.

You Don’t Know How Much You Need for Retirement

This was referenced above, but deserves it’s own point.  It seems like many people have no idea how much they need for retirement!  Many people assume they need a million dollars or some other really high amount and therefore they think “I’ll never be able to get there”.

What to do

Retirement is up to you!  Not the government, not your company – it’s up to you.  Therefore it’s vitally important to sit down and figure out what you want to do, how much it will cost and figure out how much you’ll need for retirement. 

Don’t just take these broad “You need 70% of your pre-retirement” figures you find in some financial magazine as truth! 

Everyone is different – therefore your goals are different than mine.  Make a personalized plan to figure out what you need.

How about you?

What else would you add to the list – what else have you found helpful in your retirement planning?

Remember the good old days when you worked for one company all your life and were rewarded for your loyalty with a nice pension and health benefits to help sustain you in your later years?  Add Social Security into the mix and it made for a pretty nice retirement.  

Those days are over.  There are a few companies still providing these benefits to employees, but only to the ones who have been grandfathered in.  Most large corporations and pretty much all smaller ones are doing everything they can to shift the burden of retirement to the employee. 

Thanks for Your Hard Work, But..

Look at GM for example.  When you are losing approximately $4,100 per vehicle sold it’s no wonder you can’t compete with Toyota or Honda.  A big reason for this was due to high labor costs and large pension obligations.  In the restructuring of GM, one of the major issues they were looking at was the release of those pension obligations so they could reorganize, become lean and try to become a viable car company again.

I know someone personally who worked at a large steel company for 30 years, retired with a nice pension and health benefits only to have the company file for bankruptcy, slash his pension and dump his health insurance several years later.  What a way to say “Thanks for all your years of hard work!”  I’m surprised they didn’t ask for the watch back they gave him on his 30 year anniversary.

I’ll Just Live on Social Security

Social Security was signed into law in August 14, 1935 by President Roosevelt as a response to the Great Depression and a desire to provide “economic security” to a broad number of people.  According to Wikipedia, “In 2004 the U.S. Social Security system paid out almost $500 billion in benefits.   By dollars paid, the U.S. Social Security program is the largest government program in the world and the single greatest expenditure in the federal budget, with 20.8% for social security, compared to 20.5% for discretionary defense and 20.1% for Medicare/Medicaid.”

What began as a program to provide help to those underfunded for retirement has turned out to be one of the largest social assistance programs ever created.  The problem lies in the fact that we have fewer people paying into the system than are taking from it thus creating a deficit.  In fact, in early May, the Associated Press reported this about Social Security and Medicare:

The financial health of Social Security and Medicare, the government’s two biggest benefit programs, worsened in the past year because of the severe recession.Trustees of the two programs said Tuesday that Social Security will start paying out more in benefits than it collects in taxes in 2016, one year sooner than projected last year, and the giant trust fund will be depleted by 2037, four years sooner.

Yikes!  I don’t know about you, but this doesn’t bolster any confidence in the program and certainly makes me think about other ways to fund my retirement. 

Retirement: It’s Up To You!

The bottom line in all of this is the fact that when it comes to your dreams, desires and goals, retirement is up to you.  We obviously cannot rely on others to make our goals happen, we need to step up and start getting our finances in order so that we can fund our own retirement. 

What steps can you take to start getting your retirement and financial house in order?  The best place to start is figuring out how much you need in retirement.  Once you have an idea of what it will take to support yourself, you can work your way backwards to figure out how much you need to be saving. 

To get an idea of how much you can save for retirement you should probably develop a budget  and look for expenses you can cut back on.  Use that “found money” to help save into a retirement account like a Roth IRA. 

By being frugal, simplifying your lifestyle, saving aggressively and choosing your investments wisely, you can help get on track for your retirement goals so that when Social Security stops sending you checks or your company no longer provides you with a pension you can still manage to get by on your own.  After all, you have to count on yourself to get your retirement funded properly. 

What About You?

Have you had experience with companies forgoing their pension obligations?  Are you confident that Social Security will be a piece of the pie for your retirement?  What steps have you taken to get your retirement funded properly?

No doubt most people have heard of a Roth IRA, after all, they’ve been around since 1998.  Although they’ve been available for over 11 years, I’m constantly amazed by how many people are just simply unsure of exactly what they are or what they do. 

The Basics: What is an IRA?

An IRA is simply an Individual Retirement Account (IRA) that provides investors an opportunity to save for retirement in a tax-advantaged way.  Generally, you must wait until 59 1/2 to withdraw the money without IRS penalty. 

A Roth IRA is an Individual Retirement Account named after its legislative sponsor, late senator Bill Roth, that was established in 1998 to provide an alternative method of saving for retirement that offers different tax advantages than the Traditional IRA. 

Features

The main difference between the Traditional and the Roth IRA is how it is taxed.  With a Traditional  IRA, you typically contribute before-tax (with some exceptions) money to the account.  Depending on your eligibility, you can deduct your contributions from your income on your current year taxes.  You receive the tax break now.  The money grows tax-deferred so when you pull your savings out in retirement you have to pay taxes on every single dollar you withdraw at whatever your current tax rate is at the time.

The Roth IRA is just the opposite.  You contribute after-tax dollars to the account and the money still grows tax-deferred.  You cannot deduct your contributions; however, in retirement you can withdraw your money (provided you meet certain qualifications) completely tax free. Not only that, but as long as your Roth IRA has been in existence for five years, your beneficiaries on the account can pull out money income-tax free, so the Roth IRA becomes a nifty estate planning tool as well.

Advantages

1. Obviously the biggest advantage to the Roth IRA is the tax-free withdrawals in retirement.  This can be a huge potential tax savings for you especially if you think tax rates will be going up.

2. The Roth offers more flexibility on withdrawals prior to retirement.  You can withdraw your principal (your contributions)  tax and penalty free at any time during the life of the Roth IRA.  To an undisciplined person might have trouble with this, but someone who runs into a bind an is cash strapped can have a little comfort knowing they have some additional money available.  This is a huge plus compared to the Traditional IRA, where you would pay a 10% penalty on any pre-59 1/2 withdrawals as well as taxes.  

3. Another advantage is that you can contribute to the Roth even if you are covered by an employer-sponsored retirement plan (401k etc).  With the Traditional IRA you are subject to income testing to determine if you could contribute when covered already by a plan  at work. Even if you could contribute, you don’t get to take advantage of the deduction on your taxes.  So the Roth becomes the perfect additional savings plan when you already have a 401k or other employer plan.

 4. For older folks, the fact that you do not have to take withdrawals is a major advantage as well.  With a Traditional IRA, the government forces you to take money out at age 70 1/2 or face a 50% penalty for not withdrawing your savings.  The main reason is of course to generate tax revenue.  Since Roth IRA distributions are tax free, you don’t have to worry about this rule. 

Key Tradeoffs

1. Your contributions are limited.  Currently in 2009, you may only contribute $5,000 and if you are over 50 you can contribute an additional $1,000 for a “catch-up” provision.  Depending on your income, you might be phased out of your contributions.  For example, a couple making between $166,000 and $176,000 will have their contributions limited.  Income over $176,000 disqualifies you for Roth contributions altogether.  Try this online calculator to determine how much you can contribute to a Roth.

2. You still might have to pay taxes on non-qualified distributions.  In order to meet the specifications for a qualified distribution, you must have had the Roth opened for at least five years and meet one of the following:

• Reached age 59 1/2 by the time of the withdrawal
• Withdrawal is due to qualifying disability
• Withdrawal is made for first-time homebuyer expenses (up to $10,000) 

Again, you are still able to withdraw your contributions at any time without penalty or taxes.

3. Tax treatment differs depending on the state.  The tax laws mentioned above correspond to federal law.  Your state may have differing laws for Roth IRAs You should check with your tax advisor to ensure you won’t have to pay state taxes. 

How Do I Get One?

You can open a Roth IRA through any financial institution, bank, life insurance or mutual fund company or even right online through a brokerage website.  Where you establish one primarily depends on your own needs and preferences.  There are many investment options available as well, so consider the types of investments that will suit your needs (i.e. stocks, funds, CDs, ETFs etc).

Contributions must be made by the time you file your tax return. So in essence you have until April 15 of the following year to get your Roth contributions in for the previous tax year. 

The Roth IRA can be a great investment and retirement savings vehicle for many people.  Be sure to do your homework, develop a plan, assess your needs and be comfortable with your decision.