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How to Spend a Work-Free Retirement

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Who would not want to spend their retirement years free from work-related stress? We all assume and expect that the word “retirement”, after all, means reaping the many years of diligently working through adulthood, often after finishing college and going through odd jobs. But it seems, that is not the case in most situations. In fact, according to a survey done by Bankrate, 70% of respondents said they would prefer to work through retirement as long as they can. Some 28%, on the other hand, would choose to enjoy their golden years sitting back and enjoying their retirement. 

How do we make sure we can spend a work-free retirement? Here are some suggestions:

1.       Choose a high savings rate. Saving money early in life and doing it regularly can provide protection for your future retirement years. After forty years, through the magic of compounding interest, even small amounts can become large enough to make a difference. Those who have 401(k), choose the largest percentage possible to avail of the full benefits of the company match. And for individuals above 50, George Reilly of Safe Harbour Financial Advisors in Occoquan, Virginia, suggests that they avail of “catch-up contributions” which enables them to augment a contribution of $6,000 yearly on top of their $18,000 maximum limit allowed.

2.      Minimize fee exposure. What makes savings undesirable is the presence of fees which are automatically deducted from savings accounts and can then sometimes be overlooked. The impact of a 1% fee through one’s productive years over 3 or 4 decades can readily amount to $100,000 or more. Reilly recommends investing in a target-date fund filled with index fund which is allowed by 401(k). To take advantage of time, select a fund that corresponds to a target date which is 5 to 10 years after your scheduled year of retirement.

3.      Delay your Social Security. At 62, a person can avail of Social Security; but delaying the use can bring in higher monthly payments. Instead of 70% at 62, one can get 75% if you wait until you retire. Moreover, delaying it further, say until 70, you can receive 132% of the original payment stipulated. Peggy Kessinger, of Cedar Financial Advisors in Beaverton, Oregon, suggests that to reach 70, one should tap tax-deferred accounts. And since taxes must be paid on such accounts, you must quit before the Social Security takes effect, in order to avoid increasing your income bracket.

4.      Work in government. Those who work in government obtain more retirement perks compared to those who do not because the former become beneficiaries of the Federal Employees Retirement System which includes an annuity that builds up over one’s employment years. You avail of this annuity, which has been built up by you, the employee, and the agency, in terms of monthly payments for the rest of your life. And that guaranteed income comes in addition to a Thrift Saving Plan and Social Security, benefits that others do not enjoy.

5.      Postpone retirement as long as possible. Stretching your working years will increase your savings as well. Although it may not be that attractive to many, financial advisors suggest saving sufficient money to support one for 25 to 30 years, depending on the ratio of spending. Postponing retirement can benefit the employee by gaining that targeted amount.

6.      Practice disciplined spending. Spending is the twin of saving. We cannot do one wisely without doing the other as well and hope to come out the winner in the end. According to Kessinger, an average minimum target of 3% annual withdrawal will allow one to keep one’s savings intact. However, one’s expenses will depend on how much expenses will be eventually cut during retirement. In evaluating expenses, work-connected costs, such as daily transportation to and from work, can be removed. But if these costs are substituted by travelling or house renovation, the expense amount will hardly vary. This will result into a much longer time before you can achieve your financial goal.

Start looking at retirement as a rewarding time worth welcoming by following these few steps meant to help you prepare accordingly.  

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