Right now there are many Baby Boomers that are at a crossroads of sorts. There are some who have worked and saved as advised. They have put money away faithfully throughout their working careers. These sad to say are the exception rather than the rule in the world of Baby Boomers. Then there are those who have put money away but not on a consistent basis. They either started late or they did not do so each and every year. Still they have some retirement savings. This is a larger portion but not have of the Baby Boomer group. Then there is the majority, based on several surveys and polls, of people born from 1946 to 1960. This group comprises more than half of the Baby Boomers and they have little or nothing saved for retirement. The thing that all of these groups have in common is the recent hits that most retirement accounts have taken over the last decade much less the past month.
There are several steps that can be taken to change or overcome this situation. This does not mean there is a quick and easy fix available. It does mean that if you take steps now, it will be easier than taking steps later when you have a shorter time horizon.
First, create a budget. This will help you determine where you money is currently being spent. This will also help you decide what is important. If having a big vacation each year or eating out at restaurants, then there is no point in going any further. If making sure you are able to retire at some point is important then you are going to have to put your priorities in order. List the things that have to be paid each month and then the things that are optional. Setting money aside for your retirement should be one of the first things that come out of current income. You have to be willing to “pay yourself first”. You did not get into this situation by putting money away whenever you can so it won’t change if you continue that approach. If you have an employer sponsored retirement plan that will help make things easier.
Next, take a hard look at what you currently have set aside. This means create a balance sheet and list all assets and liabilities. What are some things that have a value that will decrease over time? What are assets that will increase as time passes? Which of your debts will go away prior to retirement age? This will help you have a true assessment of your financial situation.
Then determine what your savings options are. There are three types of savings buckets. There is taxable, tax deductible and tax deferred. You can take advantage of all three depending on your situation.
The taxable type savings vehicles are things that you use after tax dollars to make contributions. Checking, savings, and money market accounts, certificates of deposits, mutual funds and individual stocks and bonds are all examples of things that can fall into this category. The growth in these vehicles is also taxed. The advantage is that they are very liquid. The disadvantage is they are very inefficient as a retirement savings vehicle. This should be used to accumulate emergency funds equal to 3 to 6 months of necessary household expenses, vacation or Christmas savings or for future purchases.
The next type of vehicle is tax deductible vehicles. These are qualified retirement accounts that you make contributions to with pre-tax dollars. Things like 401K, 403(b), IRA, SEP and Simple IRA accounts are common examples. The best situation for these types of accounts is when there is some type of employer match. This gives you the advantage of free money that you would not have otherwise. I would suggest you make contributions up to the employer matching limit. This allows you to get the most out of your free money and still put money in other places with fewer restrictions.
The third type of vehicle that we will discuss is the tax deferred retirement accounts. These are Roth IRA and 401K, and life insurance withdrawals are examples. These are situations where the tax is paid on contributions at the time the contribution is made, but no tax is paid at withdrawal. This has advantages but again there are some restrictions.
You should also consider what the age you would like to retire is and what is the age you absolutely want to retire. The longer you can delay retirement the more time your money will have to work for you. This can mean a lower contribution level if you are willing to work longer. Sometimes this can be more attractive than cutting expenses drastically today.
The thing that you should do is seek the advice of a professional. It is important to find someone that you trust and who fits with your philosophy of savings and handling money. This can be the most important part. Having someone to help you along the way can be informational as well as comforting.
By Sharon Denise Talbot at www.sharondenisetalbot.com