Rethinking Retirement in Turbulent Times

Rethinking Retirement in Turbulent Times
See Gallery
Rethinking Retirement in Turbulent Times
Not only do economic changes affect us from year to year, but personal situations can greatly influence how we save for our retirement years. Regardless of these unpredictable factors, there are certain ways to maximize our results, if we just play it smart.

Take a look at these basic tips that may help to make your retirement years more enjoyable, less stressful, and with less financial burden.

First Up: Best Retirement Move No. 1
Sure, it's obvious. Nevertheless, too few workers are setting aside money for their golden years. If you're fortunate enough to receive a raise or bonus in your job, perhaps you can set aside all or part of your extra earnings, or a regular portion of your paycheck. But even if you don't have extra cash to stow away, small changes in your daily life can reap big rewards. Cut back on the number of times you order take-out or go out to dinner. Be creative in ways to reduce your spending on a daily basis, thereby adding extra savings in the long run.

Next: Best Retirement Move No. 2
In 2008, individuals can stash up to $15,500 of pretax earnings in a 401(k). For those 50 or older by year's end, the limit is $20,500. The overall contribution cap to a 401(k) (including employer matching funds) is $46,000. Employers are increasingly offering Roth 401(k) plans, a twist on the 401(k). With a Roth 401(k), contributions are made with pay that's already been taxed, so you won't be taxed at a later date. For this reason, experts say they're a good choice for employees with lower salaries or anyone else who expects to pay higher taxes in the future.
Next: Best Retirement Move No. 3
With a traditional IRA, earnings grow tax-deferred, meaning you pay the folks at the IRS only when they're taken out, usually at retirement. Plus, depending on your income, you may also qualify to claim tax deductions for any contributions you made to the plan. A traditional IRA allows an annual contribution of up to $5,000 per person, or $6,000 for those over 50. With a Roth IRA (contributions already taxed), you do not pay taxes on earnings. To qualify for a Roth IRA in 2008, a married couple filing a joint return can not have income that exceeds $169,000. For a single person, the limits max out at $116,000.
Next: Best Retirement Move No. 4
A nonworking spouse is also eligible for an IRA and can add to your retirement bundle. "Opening an IRA for a nonworking spouse is good tax planning as well as retirement planning," says Dee Lee, a Certified Financial Planner. "If this is in a Roth, it will all be tax free forever," says Ed Slott, an IRA expert and author of "Your Complete Retirement Planning Road Map." For that reason, Slott says, the Roth IRA wins hands-down when it comes to picking an IRA for anyone, whether they work or not.
Next: Best Retirement Move No. 5
Reallocating your assets to stay on track may seem daunting. But if you don't tend to this financial housekeeping at least once a year, retirement funds may inevitably grow out of whack. You'll want to make sure that you own the right mix of stocks, bonds, mutual funds, cash and other assets to help meet your retirement goals. As the economy and your personal situation may very well change each year, you'll want to regularly assess your needs and strategy.

Next: Best Retirement Move No. 6
Target-date funds also help employees maintain a diversified mix of assets because they automatically shuffle and remix their holdings to reflect age and retirement target date. As you get older, the funds become more conservatively invested. As helpful as target-date funds are, they're designed with a cookie-cutter approach to investing. They may, in fact, not be allocated to best suit your personal goals, financial net worth or risk tolerance.

Next: Best Retirement Move No. 7
Seek help carefully. You want to hire someone who's trained in various retirement issues, not just a salesperson who's going to try to sell you a certain product, be it investments, life insurance or other assets. But a professional can be extremely valuable in helping you allocate assets and determine if you've got the right mix to meet your specific retirement goals. Fee-only planners charge for their time, while fee-based planners earn commissions for investments they sell you.

Next: Best Retirement Move No. 8
If you're hovering near that magic retirement age, it's time to start planning how you'll withdraw retirement assets. That's because the IRS requires you to start taking required minimum distributions from certain accounts, like 401(k) plans and traditional IRAs, by April 1 of the year after you turn 70'. You trigger taxes when you obtain your money. The more money you take at once, the bigger and more immediate your tax hit. The trick is to minimize taxes as much as possible. There are a variety of methods to help you retain as much as possible and a trained professional can guide you.
Next: Best Retirement Move No. 9
Spouses and nonspouse heirs who inherit a 401(k) plan can roll them into their own IRA without paying income tax. These transfers allow nonspouse heirs to stretch out distributions of assets they inherit over their lifetimes. Keep your beneficiary forms and other estate-planning documents. If you don't, those hard-earned assets may wind up going to the wrong heirs. If you want that 401(k) to go to your kids, you've got to ensure beneficiary forms say so.

Next: Best Retirement Move No. 10
You may not realize it, but your physical well-being may be one of the most significant factors affecting your financial status in later years. "Health and health care-related expenses are going to play an increasingly important role in retirement savings," says Brad Kimler, senior vice president of Fidelity Employer Services Co., a division of Fidelity Investments.Fidelity computed that a couple currently in their mid-60s who aren't covered by employer-sponsored insurance for retirees could spend roughly $215,000 on out-of-pocket medical expenses by the time they're 85 years old.
Next: More Hot Retirement Stories
The Dow suffers another triple-digit loss, real estate values plunge another 4 percent, more banks fail, credit tightens further and the value of the dollar is dropping. If it seems bad for most Americans, it is only worse for those who have already retired or were getting ready to leave the workplace for good.

Read the Article

Next: Can You Afford to Retire?
When it comes to retirement, no nest egg is ever too big. But with an economic crisis draining the life from 401(k)s, IRAs and pension plans, a lot of people are asking themselves if they can still afford to retire early, on time or at all. So how much is enough?

Read the Article

Next: Downsizing Tips
With our nation's present financial crisis, now, more than ever, many of us are looking for new ways to downsize. But for many retirees, downsizing isn't merely an option -- it's a necessary survival strategy that could stretch savings and prevent a critical money crunch later on. All it takes is one or two unfortunate life events to throw one's retirement plans into a tailspin.

Read the Article

Next: How to Beat Inflation
One of the greatest dangers to any retirement plan is that insidious erosion of purchasing power commonly known as "inflation." A weekly trip to the gas station or supermarket is enough to drive home the point. While younger, working Americans have opportunities -- often through increased earning power -- to overcome inflation, those in retirement or close to it are particularly vulnerable.

Read the Article

Next: Social Security FAQs
At what point should you start collecting your Social Security benefits? The answer may not be as easy as you think. Many people don't realize that when they begin taking Social Security benefits determines the percentage of benefits they will actually receive.

Read the Article

Next: 2008 Retirement Guide
In 2008, a year of much change and economic turbulence, it's important to get all of the retirement information you can. Bankrate will teach you everything you need to know in order to retire successfully and stress-free.

Complete 2008 Bankrate Retirement Guide

Next: More From AOL
More on AOL:
What To Do With Your Imploding 401(k)

For the fifty million Americans with 401(k) plans, these are troubling times. The volatile markets and steady stream of really bad news have caused assets in these plans to plummet.

Daniel R. Solin, author of 'The Smartest 401(k) Book You'll Ever Read,' offers his tips for both protecting your retirement nest egg and feeling more secure while your portfolio rides out these turbulent times.

Start Next Gallery:
Preventing a Wrecked Retirement