Retirement Savings Strategies

Americans consistently rank retirement planning among their most important financial goals and for good reason. Many people aren't saving enough to provide for a comfortable lifestyle in retirement, even with Social Security benefits. For success, it pays to start saving as early as possible and give your investments plenty of time to grow. It also helps to take advantage of tax and other subsidies. Here are some considerations for people in various groups:

Age group: The young-adult years (ages 18 to 34 or so)

Planning themes: If you're in this age group, just get started with a savings plan. After all, retirement will be here before you know it. Planning for retirement usually isn't a priority for people in your group, especially if you're juggling student loans or trying to buy a home. But if you can start early, your accounts can grow for decades.

Retirement specifics: Find out what's available. Once you start working, you can set up an Individual Retirement Account or join your company's 401(k) plan. It's also a good time to learn how to invest. Growth options such as growth stocks are suitable for young adults, who have time to recoup short-term losses in pursuit of higher long-term gains.

Tax considerations: You won't pay current taxes on money invested in 401(k) plans and, possibly, traditional IRAs. Instead, money is taxed when withdrawn. With Roth IRAs, you get no deduction but withdrawals come out tax-free in retirement. If your income is low, check into the retirement saver's credit, worth up to $1,000 ($2,000 for married couples).

Recommended savings rate: Strive to build an emergency fund and invest enough to qualify for 401(k) matching funds at work, if available. All that should have you socking away at least 5 percent for retirement. Anything above that is gravy.

Age group: The midcareer years (35 to 49)

Planning themes: Once you reach this age group, you have fewer excuses for not saving seriously for retirement. By now, you're likely earning more money, which helps, though you might face new challenges, such as saving for the kids' college costs. Start paying attention to your Social Security benefit estimates and try the calculators in the Learning Center.

Retirement specifics: If you've been investing in an IRA or 401(k) plan for a while, your accounts might have some serious money in them by now. One challenge might be leaving your nest egg alone. Stocks and other growth investments still make sense, but you might want to cushion against losses by raising your stake in bonds and fixed-income assets.

Tax considerations: These are normally important home ownership years, and housing for many people remains a way to build wealth with the help of tax benefits - the current slump notwithstanding. If you have kids, you can make use of tax-sheltered section-529 college accounts and higher-education deductions and credits.

Recommended savings rate: By now, you should be saving and investing regularly, in several pots. You also should be investing more than what's needed to receive full workplace matching funds. Combined, your saving rate should be around 10 percent yearly.

Age group: The get-serious years (50 to 62)

Planning themes: If you're in this group, you're probably hearing the retirement clock ticking. These tend to be peak earning years, but there's less time to work with. Women lag men in retirement preparation and should step up their savings if necessary. It's wise to estimate how much income your assets could generate. By now, you might have a clearer picture of future medical needs.

Retirement specifics: If you're behind in planning, you can make "catch up" contributions to retirement accounts once you hit 50. This means you can sock away an extra $1,000 a year in traditional IRAs and $5,500 in 401(k)-type plans without exceeding normal limits and triggering a penalty. A portfolio balanced between growth and conservative assets makes sense.

Tax considerations: If you have retirement plans, 59 1/2 marks a key age. That's when you can tap your accounts and avoid the 10 percent penalty on early withdrawals that normally applies. Age 62 is when you can start taking Social Security, but your monthly benefits could be around 30 percent lower than if you wait until full retirement age, which varies by birth year.

Recommended savings rate: It's time to shift to a higher gear if you're behind in saving, as many people are at this stage. The government recognizes that by allowing catch-up contributions to retirement accounts. A goal of 15 to 20 percent could be warranted.

Age group: The early-retirement years (63 to 69)

Planning themes: This is the time to get retirement off on a sound footing, with key decisions to make and behaviors to adopt. If you're like many early retirees, you have less cash coming in but still want to enjoy life while active and healthy. No wonder early retirees often discover their costs rise after they quit working. Whether or not to downsize your home looms as a critical question.

Retirement specifics: If you're in your 60s, beware the temptation to shift your entire portfolio to conservative assets. Doing so will expose you to inflation risk, especially if you live 20, 30 or more years. This is also when you might turn to annuities, long-term-care insurance - products that might or might not be suitable, depending on your situation.

Tax considerations: As a young retiree, you might want or need to keep working. But you face a penalty if you start tapping Social Security benefits before reaching full retirement age (which varies but ranges between 66 and 67 for Baby Boomers). Benefits could be cut by up to $1 for every $2 in work earnings above an annual limit if you haven't reached full retirement age.

Recommended savings rate: Here, your saving effort will hinge directly on your circumstances - how much you have already, whether you're taking Social Security benefits and whether you're retired. Regardless, try to squirrel away something if you can.

Age group: The later-retirement years (70 and up)

Planning themes: By now, there's no more kicking the retirement can down the road. If you didn't prepare financially, you face the prospect of relying mainly on Social Security benefits, which averaged just $1,230 per month for Florida retirees in 2012. These are also the years when health costs can take a huge bite out of your budget, though other spending might ease a bit.

Retirement specifics: Social Security and other programs have cut the poverty rate among seniors compared with decades earlier. If you're currently retired, you also might have access to a traditional pension - a benefit not likely to be shared by younger generations. Still, you can't afford to make mistakes like mismanaging assets or falling victim to financial scams.

Tax considerations: After you hit 701/2, you must start pulling money out of IRA and 401(k) accounts or face a 50 percent IRS penalty (Roth IRAs don't have this withdrawal requirement). If you're fully retired, you might not itemize deductions and might not even need to file a tax return because of low income. Conversely, affluent seniors might face taxes on some Social Security benefits.

Recommended savings rate: You're now in the distribution phase and likely withdrawing from your accounts. Work might not be in the cards, so your income is limited. The new goal is breaking even on your cash flow, or at least spending your assets slowly.

Call Roth Financial Group today at 321-454-3398