Mission Possible: Retirement

12 10 2010

This weekend there was a great article on CNN’s website about overcoming financial roadblocks and getting back on track with retirement savings.

Seeing that almost half of Americans worry that they won’t have enough money to retire, and how many are delaying their retirement, shows just how relevant articles like this are. The article lists the five most common roadblocks that hinder retirement and provides some strategies to maneuver through the obstacles. Hopefully it provides you with encouraging ideas.

#1: Big Mortgage

Solution #1: Pay of the debt if you can – if you have savings beyond an emergency fund, use that to pay off the debt.

Solution #2: Minimize the Balance – Make larger payments than necessary, this will help shave off interest and allow you to pay off the mortgage sooner.

Solution #3: Downsize – Try to sell your home and buy a smaller one paying cash, you will no longer have a mortgage to pay.


#2: Weak Portfolio

Solution #1: Save, Save, Save – Put the maximum amount that you can in your 401(k), the standard allowance is $16,500 a year. If you are 50 or older, you can contribute another $5,500.

Solution #2: 70/30 Stock investment – Try to avoid investing too aggressively, thinking that will help you catch up. A good rule of thumb is to invest 70% in stocks in your early fifties, and decrease that to 50% throughout the next two decades as you get nearer to retirement.

Solution #3: Happy Semi-retirement! – Instead of retiring completely, you can consider continuing to work, but at less hours. Getting a steady paycheck will allow you to postpone Social security, which increases payouts by roughly 8% each year you delay after you turn 62.


#3: No health insurance

Solution #1: Group up – You can enroll in your company’s group plan under COBRA law within 60 days of retiring. You will have to pay the full premium, but it will likely still be less than participating in an individual plan.

Solution #2: Work around the costs – Again, consider semi-retirement, so that you can afford an individual plan once COBRA runs out, and Medicare has not kicked in yet.

Solution #3: Pay more out of pocket – Health insurance premiums will be lower if you participate in a plan with a higher deductible.


#4: College Expenses

Solution #1: Count the cost – Use a retirement calculator like AARP’s Retirement Nest Egg Calculator to determine how much you need to retire at a place that you are comfortable, then see how much more tuition for your child will be. (Tuition on average ranges between $20,000 and $50,000 per year). Remember, if you plan to borrow from your 401(k) or IRA to pay the college expenses, this is considered a source of income, that will likely result in less aid if you apply for financial aid as well.

Solution #2: Bargain hunt – Research what schools give generous grants. Have your child apply for scholarships, check out www.fastweb.com where your child can create a profile which will filter out scholarship matches for them.

Solution #3: Borrow Smart – Instead of taking out a Parent Loan for Undergraduate Students (PLUS) Loan at 7.9%, plan to use federal Stafford Loans first, which are fixed at 6.8% and are in the child’s name.


#5: Out of a Job

Solution #1: Lower your expectations – If you lost your job during the last few years, you probably lowered your expenses in order to make it. Consider continuing to live at this lesser income in order to still be able to retire on time.

Solution #2: Open your own accounts – Continue to save. If you are able to find a job, most companies will let you begin contributing to the retirement plan immediately. If that is not the case for you, open an IRA, and start saving, every little bit counts.

Solution #3: Side-work – Even if it means taking a pay cut, take on a side-job. Gaining some form of income is better than nothing.




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