By Vikash Agarwal
For many individuals, their targeted retirement age is consistent with the social security administration’s definition or normal retirement age, which means retiring between age 58 and 60. However, one’s true retirement age is determined by many factors, including one’s state of financial readiness. But many individuals are not in an ideal situation, resulting in their retirement age being dictated by circumstances beyond their control.
You are not obligated to define your retirement in the traditional sense, which usually means retiring from an income-producing job at a certain age. Instead, you can choose to define what retirement means to you. For some, it will mean no longer working, but doing activities like traveling and others that they consider fun. For others it may mean starting a new active phase of their lives, which might mean finally being able to start a new business to focus on their true passion. Whether you choose to take any of these or other paths, the key is to work towards living a happy and fulfilling retirement life. As you get closer to retirement age, working with a team of professionals who can help you to effectively manage your retirement goals and objectives becomes increasingly important because there is less time to recover from mistakes and market losses. Work with your financial advisor to determine if you are on track to save enough to ensure a financially secured retirement. If not, your financial advisor can help you to identify and implement measures to improve your financial status and get you on track.
Discuss your saving options with your tax professional so that he or she can help you to determine how much you can afford to add to your savings. In some cases, you may be able to offset the cost of contributing to your retirement account by taking a tax deduction for contributions or making contributions on a pre-tax basis, and claiming the non-refundable savers credit. There are other factors that should be considered, such as the amount of income tax that would be paid under each option. Your tax advisor should be able to assist you by providing reasonable determination for which would result in the least amount of income tax paid.
Individuals who are behind with their retirement savings might risk contributing more than they can afford in an attempt to play catch-up. However, when considering how much more you can add to your savings for your retirement nest egg, it is important to ensure that you do not save more than you can afford as doing so can negatively impact your savings. You might be saving too much if you find that you are adding amounts to your savings account, while having no option but to use credit cards and other means of debt to cover your living expenses. The rate of return on your savings and investments plays a critical role in how much you will have accumulated by the time you are ready to retire. Investing in only low-risk assets helps to ensure that your capital is protected, but can mean insufficient returns on your investments. On the other hand, investing in high-risk assets comes with the promise of higher returns, but is accompanied with the risk of losing your capital and previous earnings. Consider working with your investment professional to strike a balance where ever possible.
If you are still unable to retire by your desired retirement age, you have the option of deferring your planned retirement age, or you may consider a working retirement. Working past your desired retirement age can provide several benefits. In addition to providing additional financial resources to cover your living expenses, you might be eligible for employer-provided medical and dental benefits, which could help to reduce your out of pocket costs for such items. Bear in mind that some employers do not provide such benefits for individuals who have passed a certain age, as defined in their policies and procedures. Accordingly, if you have the option of choosing between two or more jobs, the employee benefits provided by each employer should be a determining factor when making your choice. Your plans for retirement should include being able to cover costs for healthcare and, depending on certain factors, long-term care, and the related costs can be high. Retirement income for many comes from three primary sources: your regular savings, your savings in your retirement account and social security income.
It is possible that you will not spend all of the funds that you save in your retirement nest egg. As such, you should make plans to ensure proper disposal of those assets, including ensuring that your beneficiaries pay the least amount of income tax possible. Inevitably, changes will occur that affect your finances, and some of these will be life-cycle changes. As these changes occur, modifications should be made to your finances to ensure that your retirement planning goals and objectives are modified if necessary. If your children leave your home to live on their own, it will mean that you can redirect some of the funds that were allocated towards their wellbeing and general living to your retirement nest egg.
The cost of taking care of the elderly can be high, and could negatively impact your savings effort if measures are not put in place to cover their living expenses. If your parents have a long life expectancy and will not be eligible for medical aid, it may be practical to have them purchase long-term care insurance to protect their assets from being used to cover long-term care needs.These are just some of the considerations for helping to ensure a financially secure retirement. Working with professionals can help you to establish realistic goals and objectives, as well as identify any gaps in your plans and provide realistic solutions.
