The headlines this year about retirement were bleak and bleaker – forget 65, the new retirement age is 80, or until one is too sick to work, or worse, they die. For many, saving for retirement has to take a backseat to paying the bills.
Instead of dwelling on the doom and gloom, let it propel you to not just make New Year's resolutions about retirement, but to commit to making them a reality.
Realize the limits of social security and develop a Plan B
Many people will rely primarily, and some even solely, on social security. However, the social security benefit age has increased to 67 for those born in 1960 or later and will continue to increase. "Social security will not be enough to live on during retirement. You will need another source of income," warns Harrine Freeman, CEO of H.E. Freeman Enterprises, which offers credit repair and financial counseling services.
Step up savings
No matter what age you are, plan to step up, or start saving for retirement. You don't want to be that bag lady or man. Maximize contributions to your employer-sponsored retirement account. The limits for 2014 are $17,500 with a "catch-up" provision of another $5,500 for those who are age 50 and over. "At the very least, if you can't maximize for cash flow reasons, at least contribute the amount needed to obtain the maximum employer matching contribution," says Vijay Khetarpal, president and CEO of Integrity Financial Group.
If you don't have a retirement plan through your employer or your own business, set one up. Many institutions have turn-key options that can help you do this in short order. "The sooner you get your money into your tax-deferred retirement account, the sooner that money will begin to compound for your retirement," says Roger Stinnett, managing director of wealth planning at First Foundation Advisors.
Get serious about saving and consider ways to generate extra income to plow into retirement funds, such as working part-time, taking on odd jobs, or seeking out overtime on your job, for example, suggests Leslie Tayne, an attorney specializing in financial issues with the Tayne Law Group.
If you want to ramp up savings, you'll also need to create or revisit your budget and vow that in 2014, there's little room for excuses. You will just say no, to some stuff that you know are not necessities and luxuries that in reality you can't afford if you plan to retire as you hope. Live within your means and pay down existing debt until it no longer stands between you and your retirement goals.
If you're just starting out in your career, setting aside 10% of your income for retirement is a good goals. Later in life though, you'll need to up that percentage to make up for lost time, says J.J. Montanaro, a certified financial planner with USAA.
One strategy, once you have a target savings you want to achieve, is to divide that number by the number of paychecks you will receive in 2014. Take that result and make that your 401k contribution every pay day from the first paycheck of the year, says Ted Sarenski, CEO and president of Blue Ocean Strategic Capital.
Review your asset allocation
Ask yourself some tough questions. "Do you know how you're invested? Do you know your after-tax rate of return? Do you know your expenses?" says Rachele Cawaring Bouchand, director of financial planning for the accounting firm of Clark Nuber.
Because of the new 20% capital gains tax and the 3.8% surtax on investment income, look at reallocating your portfolio so it's tax efficient. "When tax rates were lower, it didn't mean as much, but now, it can make a big difference in overall return. It's time to move investments that generate a lot of income to your retirement (tax-deferred accounts) and ones that are tax-efficient to taxable accounts," says Cawaring Bouchand.
Make the decision to know your numbers
Sit down with an advisor and figure out how much it will cost you to retire. You need a rough idea of when you want to retire, desired income during retirement and what income sources you will have. "Invest based on that number, not your market view. Your goals should drive the bus, not the news," says Khetarpal.
Know how much return you need and balance this with your actual risk tolerance. There is no rule that says you need to maximize your risk tolerance, if you feel more comfortable being conservative and can meet your required rate of return, it's okay to have a more conservative portfolio, says Cawaring Bouchand.
If you're entering or close to retiring, consider setting up a retirement withdrawal plan. This may help to ensure that the money you need for living expenses is there when you need it, with as little disruption to the overall portfolio management and performance of your portfolio. The plan should incorporate tax sensitivity and outline the magnitude, ordering and timing of withdrawals from each of your various taxable, tax-deferred and tax-free accounts, says Stinnett.
Start thinking like the wealthy
Self-directed retirement accounts were long held as the domain of wealth investors, but are becoming more popular among the masses, particularly savvy investors who might already be investing in alternative and traditional assets outside of their existing IRAs, says Jaime Raskulinecz, founder and CEO of Next Generation Trust Services, a third-party administrator of self-directed retirement plans. "Self-direction can be a great way to grow retirement wealth more aggressively and get off the roller coaster of the stock, bond, and mutual fund markets that we've experienced since 2001," says Raskulinecz.
Self-directed portfolios can take advantage of many types of investments, such as non-publicly traded assets such as real estate, commodities, precious metals, even unsecured loans, mortgages, private placements, says Raskulinecz, who adds, "All the income and expenses for these investments flow through the self-directed accounts, which enjoy the same tax advantages of regulars IRAs."
Mitch Tuchman, co-founder of Rebalance IRA, a registered investment advisor that exclusively manages IRAs, offers a reminder to keep you motivated, "The beautiful thing about making and keeping financial resolutions is that being debt-free and watching your savings and investments grow is an empowering feeling. It frees you up to make other choices in life and to live and experience things with far less stress."